 | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
| | | | As At | |
| (thousands of Canadian dollars) | Notes | | June 30, 2012 | | | December 31, 2011 | |
| Assets | | | | | | | |
| Current assets | | | | | | | |
| Cash and cash equivalents | 16 | $ | 5,189 | | $ | 6,607 | |
| Accounts receivable and other | 16 | | 184,430 | | | 212,252 | |
| Inventories | 4 | | 99,949 | | | 60,952 | |
| Prepaid expenses | | | 15,956 | | | 18,526 | |
| Risk management contracts | 16 | | 19,816 | | | 20,162 | |
| | | | 325,340 | | | 318,499 | |
| Non-current assets | | | | | | | |
| Long-term deposit | 8 | | - | | | 24,925 | |
| Investment tax credits and other | | | 53,983 | | | 53,994 | |
| Deferred income tax asset | | | 11,415 | | | - | |
| Exploration and evaluation assets | 5 | | 79,123 | | | 74,517 | |
| Property, plant and equipment | 6 | | 5,395,943 | | | 5,400,387 | |
| Other long-term asset | | | 6,749 | | | 7,105 | |
| Goodwill | | | 404,943 | | | 404,943 | |
| | | | 5,952,156 | | | 5,965,871 | |
| Total assets | | $ | 6,277,496 | | $ | 6,284,370 | |
| | | | | | | | |
| Liabilities | | | | | | | |
| Current liabilities | | | | | | | |
| Accounts payable and accrued liabilities | 16 | $ | 348,125 | | $ | 464,148 | |
| Current portion of convertible debentures | 16 | | 106,938 | | | 107,146 | |
| Current portion of decommissioning liabilities and environmental remediation liabilities | 7 | | 23,847 | | | 12,782 | |
| | | | 478,910 | | | 584,076 | |
| Non-current liabilities | | | | | | | |
| Bank loan | 9, 16 | | 640,249 | | | 355,575 | |
| Convertible debentures | 16 | | 633,455 | | | 634,921 | |
| Senior notes | 16 | | 497,044 | | | 495,674 | |
| Long-term liability | 8, 16 | | 2,000 | | | - | |
| Decommissioning and environmental remediation liabilities | 7 | | 664,389 | | | 674,522 | |
| Post-employment benefit obligations | | | 31,024 | | | 25,958 | |
| Deferred credits and other | | | 619 | | | 5,093 | |
| Deferred income tax liability | | | 26,529 | | | 54,907 | |
| | | | 2,495,309 | | | 2,246,650 | |
| Total liabilities | | $ | 2,974,219 | | $ | 2,830,726 | |
| | | | | | | | |
| Shareholder’s equity | | | | | | | |
| Shareholder’s capital | | | 3,860,786 | | | 3,860,786 | |
| Deficit | | | (534,369 | ) | | (388,995 | ) |
| Accumulated other comprehensive loss | 15 | | (23,140 | ) | | (18,147 | ) |
| Total shareholder’s equity | | | 3,303,277 | | | 3,453,644 | |
| Total liabilities and shareholder's equity | | $ | 6,277,496 | | $ | 6,284,370 | |
Commitments[Note 18]
The accompanying notes are an integral part of these consolidated financial statements.
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
| | | | Three months ended | | | Six months ended | |
| | | | June 30, | | | June 30, | |
| (thousands of Canadian dollars) | Notes | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | | |
| Petroleum, natural gas, and refined products sales | | $ | 1,572,598 | | $ | 838,602 | | $ | 3,052,155 | | $ | 2,123,383 | |
| Royalties | | | (38,790 | ) | | (56,561 | ) | | (92,207 | ) | | (92,419 | ) |
| Revenues | 11 | | 1,533,808 | | | 782,041 | | | 2,959,948 | | | 2,030,964 | |
| | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | |
| Purchased products for processing and resale | | | 1,238,803 | | | 477,012 | | | 2,340,519 | | | 1,369,025 | |
| Operating | | | 144,607 | | | 128,174 | | | 319,063 | | | 265,708 | |
| Transportation and marketing | | | 6,370 | | | 12,365 | | | 13,421 | | | 17,062 | |
| General and administrative | | | 18,112 | | | 15,258 | | | 30,415 | | | 29,221 | |
| Depletion, depreciation and amortization | 6 | | 173,796 | | | 150,210 | | | 344,848 | | | 290,954 | |
| Exploration and evaluation | 5 | | 12,348 | | | 4,243 | | | 19,084 | | | 10,454 | |
| Gains on disposition of property, plant and equipment | | | (363 | ) | | (440 | ) | | (469 | ) | | (680 | ) |
| Finance costs | 12 | | 27,552 | | | 26,884 | | | 54,888 | | | 54,401 | |
| Risk management contracts (gains) losses | 16 | | 368 | | | 170 | | | 97 | | | (5,293 | ) |
| Foreign exchange (gains) losses | 13 | | 1,328 | | | (1,464 | ) | | 134 | | | (11,272 | ) |
| Impairment on property, plant and equipment | 6 | | - | | | - | | | 21,843 | | | - | |
| Income (loss) before income tax | | | (89,113 | ) | | (30,371 | ) | | (183,895 | ) | | 11,384 | |
| | | | | | | | | | | | | | |
| Income tax recovery | | | (15,820 | ) | | (10,842 | ) | | (38,521 | ) | | (7,051 | ) |
| Net income (loss) | | | (73,293 | ) | | (19,529 | ) | | (145,374 | ) | | 18,435 | |
| | | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | | | | | |
| Gains (losses) on designated cash flow hedges, net of tax | 15,16 | | 7,015 | | | 50,994 | | | (306 | ) | | 10,588 | |
| Gains (losses) on foreign currency translation | 15 | | 15,999 | | | (5,019 | ) | | (69 | ) | | (28,941 | ) |
| Actuarial loss, net of tax | 15 | | (1,778 | ) | | - | | | (4,618 | ) | | - | |
| Comprehensive income (loss) | | $ | (52,057 | ) | $ | 26,446 | | $ | (150,367 | ) | $ | 82 | |
The accompanying notes are an integral part of these consolidated financial statements.
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
(UNAUDITED)
| | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | Other | | | Total | |
| | | | Shareholder’s | | | | | | Comprehensive | | | Shareholder’s | |
| (thousands of Canadian dollars) | Notes | | Capital | | | Deficit | | | Loss | | | Equity | |
| Balance at December 31, 2011 | | $ | 3,860,786 | | $ | (388,995 | ) | $ | (18,147 | ) | $ | 3,453,644 | |
| Losses on derivatives designated as cash flow hedges, net of tax | 15 | | - | | | - | | | (306 | ) | | (306 | ) |
| Losses on foreign currency translation | 15 | | - | | | - | | | (69 | ) | | (69 | ) |
| Actuarial loss, net of tax | 15 | | - | | | - | | | (4,618 | ) | | (4,618 | ) |
| Net loss | | | - | | | (145,374 | ) | | - | | | (145,374 | ) |
| Balance at June 30, 2012 | | $ | 3,860,786 | | $ | (534,369 | ) | $ | (23,140 | ) | $ | 3,303,277 | |
| | | | | | | | | | | | | | |
| Balance at December 31, 2010 | | $ | 3,355,350 | | $ | (284,338 | ) | $ | (54,157 | ) | $ | 3,016,855 | |
| Issue of share capital for cash | | | 505,436 | | | - | | | - | | | 505,436 | |
| Gains on derivatives designated as cash flow hedges, net of tax | | | - | | | - | | | 10,588 | | | 10,588 | |
| Losses on foreign currency translation | | | - | | | - | | | (28,941 | ) | | (28,941 | ) |
| Net income | | | - | | | 18,435 | | | - | | | 18,435 | |
| Balance at June 30, 2011 | | $ | 3,860,786 | | $ | (265,903 | ) | $ | (72,510 | ) | $ | 3,522,373 | |
The accompanying notes are an integral part of these consolidated financial statements.
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | Six Months Ended June 30, | |
| (thousands of Canadian dollars) | Notes | | 2012 | | | 2011 | |
| Cash provided by (used in) | | | | | | | |
| Operating Activities | | | | | | | |
| Net income (loss) | | $ | (145,374 | ) | $ | 18,435 | |
| Items not requiring cash | | | | | | | |
| Depletion, depreciation and amortization | | | 344,848 | | | 290,954 | |
| Accretion of decommissioning and environmental remediation liabilities | 7, 12 | | 10,330 | | | 11,843 | |
| Unrealized gains on risk management contracts | 16 | | (77 | ) | | (3,085 | ) |
| Unrealized (gains) losses on foreign exchange | 13 | | 826 | | | (11,107 | ) |
| Non-cash interest income | | | (263 | ) | | (231 | ) |
| Unsuccessful exploration and evaluation costs | 5 | | 16,472 | | | 10,239 | |
| Impairment on property, plant and equipment | 6 | | 21,843 | | | - | |
| Gains on disposition of property, plant and equipment | | | (469 | ) | | (680 | ) |
| Deferred income tax recovery | | | (38,521 | ) | | (7,024 | ) |
| Other non-cash items | | | (4,534 | ) | | 202 | |
| Settlement of decommissioning and environmental remediation liabilities | 7 | | (9,960 | ) | | (6,249 | ) |
| Change in non-cash working capital | 14 | | (39,161 | ) | | (48,933 | ) |
| | | | 155,960 | | | 254,364 | |
| | | | | | | | |
| Financing Activities | | | | | | | |
| Issue of common shares, net of issue costs | | | - | | | 505,436 | |
| Bank borrowing, net of repayments | | | 284,166 | | | 160,261 | |
| Other cash items | | | (77 | ) | | - | |
| | | | 284,089 | | | 665,697 | |
| | | | | | | | |
| Investing Activities | | | | | | | |
| Business acquisitions | | | - | | | (512,523 | ) |
| Additions to property, plant and equipment | 6 | | (352,332 | ) | | (466,200 | ) |
| Additions to exploration and evaluation assets | 5 | | (30,696 | ) | | (41,570 | ) |
| Property dispositions (acquisitions), net | | | 753 | | | (3,385 | ) |
| Change in long-term liability | 8 | | 2,000 | | | - | |
| Change in non-cash working capital | 14 | | (61,192 | ) | | 93,496 | |
| | | | (441,467 | ) | | (930,182 | ) |
| | | | | | | | |
| Change in cash and cash equivalents | | | (1,418 | ) | | (10,121 | ) |
| | | | | | | | |
| Effect of exchange rate changes on cash | | | - | | | (19 | ) |
| | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 6,607 | | | 18,906 | |
| | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 5,189 | | $ | 8,766 | |
| | | | | | | | |
| Interest paid | | $ | 32,381 | | $ | 30,456 | |
| Income tax paid | | $ | - | | $ | (27 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three and six months ended June 30, 2012 and 2011
(Tabular amounts in thousands of Canadian dollars)
| 1. | Nature of Operations and Structure of the Company |
| | | |
| Harvest Operations Corp. (“Harvest” or the “Company”) is an energy company with petroleum and natural gas operations focused on the operation and further development of assets in western Canada (“Upstream”) and a medium gravity sour crude hydrocracking refinery and retail and wholesale petroleum marketing business both located in the Province of Newfoundland and Labrador (“Downstream”). Harvest’s Downstream business operates under its wholly owned subsidiary, North Atlantic Refining Limited (“North Atlantic”). |
| | | |
| Harvest is a wholly owned subsidiary of Korea National Oil Corporation (“KNOC”). The Company is incorporated and domiciled in Canada. Harvest’s principal place of business is located at 2100, 330 – 5thAvenue SW, Calgary, Alberta, Canada T2P 0L4. |
| | | |
| These consolidated financial statements were approved and authorized for issue by the Board of Directors on August 8, 2012. |
| | | |
| 2. | Basis of Presentation |
| | | |
| These interim consolidated financial statements have been prepared in accordance with IAS 34 – “Interim Financial Reporting” using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The interim consolidated financial statements do not include all of the information required for annual financial statements and should be read in conjunction with the Audited Consolidated Financial Statements as at and for the year ended December 31, 2011, which were prepared in accordance with IFRS as issued by the IASB. |
| | | |
| (a) | Basis of Measurement |
| | | |
| | The consolidated financial statements have been prepared on the historical cost basis except for held- for-trading financial assets and derivative financial instruments, which are measured at fair value. |
| | | |
| (b) | Functional and Presentation Currency |
| | | |
| | In these consolidated financial statements, unless otherwise indicated, all dollar amounts are expressed in Canadian dollars, which is the Company’s functional currency. All references to US$ are to United States dollars. |
| | | |
| 3. | Significant Accounting Policies |
| | | |
| These interim consolidated financial statements follow the same accounting principles and methods of application as those disclosed in note 2 to the Company’s Audited Consolidated Financial Statements as at and for the year ended December 31, 2011. |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| | | | June 30, 2012 | | | December 31, 2011 | |
| | Petroleum products | | | | | | |
| | Upstream – pipeline fill | $ | 3,529 | | $ | 1,325 | |
| | Downstream | | 92,717 | | | 56,298 | |
| | Total petroleum product inventory | | 96,246 | | | 57,623 | |
| | Parts and supplies | | 3,703 | | | 3,329 | |
| | | $ | 99,949 | | $ | 60,952 | |
| For the three and six month periods ended June 30, 2012, Downstream recognized inventory impairments, net of reversals, of $11.7 million (2011 - $3.2 million). These amounts are included with “purchased products for processing and resale” in the consolidated statements of comprehensive income. |
| | |
| 5. | Exploration and Evaluation Assets (“E&E”) |
| As at December 31, 2010 | $ | 59,554 | |
| Additions | | 50,883 | |
| Acquisition | | 18,627 | |
| Dispositions | | (717 | ) |
| Unsuccessful exploration & evaluation costs | | (17,757 | ) |
| Transfer to property, plant & equipment | | (36,073 | ) |
| As at December 31, 2011 | $ | 74,517 | |
| Additions | | 30,696 | |
| Unsuccessful exploration and evaluation costs | | (16,472 | ) |
| Transfer to property, plant and equipment | | (9,618 | ) |
| As at June 30, 2012 | $ | 79,123 | |
Harvest determined certain E&E costs to be unsuccessful and not recoverable, which were expensed as follows:
| | | | Three months ended June 30 | | | Six months ended June 30 | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Pre-licensing costs | $ | 34 | | $ | 95 | | $ | 2,612 | | $ | 215 | |
| | Unsuccessful E&E costs | | 12,314 | | | 4,148 | | | 16,472 | | | 10,239 | |
| | E&E expense | $ | 12,348 | | $ | 4,243 | | $ | 19,084 | | $ | 10,454 | |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| 6. | Property, Plant and Equipment (“PP&E”) |
| | | | Upstream | | | Downstream | | | Total | |
| | Cost: | | | | | | | | | |
| | As at December 31, 2010 | $ | 3,964,155 | | $ | 1,081,885 | | $ | 5,046,040 | |
| | Additions | | 682,497 | | | 284,244 | | | 966,741 | |
| | Acquisitions | | 533,963 | | | - | | | 533,963 | |
| | Change in decommissioning liabilities | | (18,245 | ) | | 3,767 | | | (14,478 | ) |
| | Transfers from E&E | | 36,073 | | | - | | | 36,073 | |
| | Disposals | | (882 | ) | | (18,031 | ) | | (18,913 | ) |
| | Exchange adjustment | | - | | | 36,928 | | | 36,928 | |
| | Investment tax credits | | - | | | (10,187 | ) | | (10,187 | ) |
| | As at December 31, 2011 | $ | 5,197,561 | | $ | 1,378,606 | | $ | 6,576,167 | |
| | Additions | | 332,531 | | | 19,801 | | | 352,332 | |
| | Acquisitions | | 1,234 | | | - | | | 1,234 | |
| | Change in decommissioning liabilities | | (92 | ) | | - | | | (92 | ) |
| | Transfers from E&E | | 9,618 | | | - | | | 9,618 | |
| | Disposals | | (1,517 | ) | | - | | | (1,517 | ) |
| | Exchange adjustment | | - | | | 1,652 | | | 1,652 | |
| | Investment tax credits | | - | | | (496 | ) | | (496 | ) |
| | As at June 30, 2012 | $ | 5,539,335 | | $ | 1,399,563 | | $ | 6,938,898 | |
| | | | | | | | | | | |
| | Accumulated depletion, depreciation, amortization and impairment losses: | | | | �� | | | | | |
| | As at December 31, 2010 | $ | 484,302 | | $ | 78,502 | | $ | 562,804 | |
| | Depreciation, depletion and amortization | | 535,384 | | | 91,006 | | | 626,390 | |
| | Disposals | | - | | | (18,031 | ) | | (18,031 | ) |
| | Exchange adjustment | | - | | | 4,617 | | | 4,617 | |
| | As at December 31, 2011 | | 1,019,686 | | | 156,094 | | | 1,175,780 | |
| | Depreciation, depletion and amortization | | 291,186 | | | 53,306 | | | 344,492 | |
| | Impairment | | 21,843 | | | - | | | 21,843 | |
| | Exchange adjustment | | - | | | 840 | | | 840 | |
| | As at June 30, 2012 | $ | 1,332,715 | | $ | 210,240 | | $ | 1,542,955 | |
| | | | | | | | | | | |
| | Net Book Value | | | | | | | | | |
| | As at June 30, 2012 | $ | 4,206,620 | | $ | 1,189,323 | | $ | 5,395,943 | |
| | As at December 31, 2011 | $ | 4,177,875 | | $ | 1,222,512 | | $ | 5,400,387 | |
General and administrative costs of $6.2 million and $12.2 million have been capitalized during the three and six months ended June 30, 2012 (2011 – $4.8 million and $9.2 million respectively). Borrowing costs relating to the development of BlackGold assets and the Downstream debottlenecking project have been capitalized within PP&E during the three and six months ended June 30, 2012 in the amounts of $3.4 million and $6.2 million (2011 – $2.0 million and $3.3 million respectively), at a weighted average interest rate of 5.64% and 5.70% respectively (2011 – 6.86% and 6.99% respectively).
At June 30, 2012 the following costs were excluded from the asset base subject to depreciation, depletion and amortization: BlackGold oil sands assets of $579.2 million (2011 – $497.2 million); Downstream assets under construction of $110.0million (2011 – $102.5 million); and Downstream major parts inventory of $7.5million (2011– $7.5 million).
PP&E impairment expenses for the three and six months ended June 30, 2012 were $nil and $21.8 million respectively (2011 - $nil). During the first quarter of 2012, Harvest recorded an impairment of $21.8 million (before tax) to its Upstream PP&E relating to certain gas properties in the South Alberta cash generating unit to reflect lower forecasted gas prices, which resulted in lower estimated future cash flows. The recoverable amount was based on the assets’ value-in-use, estimated using the net present value of the future cash flows using a pre-tax discount rate of 10%.
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| 7. | Decommissioning & Environmental Remediation Liabilities |
| | |
| Harvest estimates the total undiscounted amount of cash flows required to settle its decommissioning and environmental remediation liabilities to be approximately $1.5 billion at June 30, 2012 (2011 - $1.4 billion), which will be incurred between now and 2072. A risk-free discount rate of 3.0% (2011 - 3.0%) and inflation rate of 1.7% (2011 - 1.7%) were used to calculate the fair value of the decommissioning and environmental remediation liabilities. The following is a reconciliation of the decommissioning liabilities: |
| | | | Upstream | | | Downstream | | | Total | |
| | Decommissioning liabilities at December 31, 2010 | $ | 651,048 | | $ | 10,426 | | $ | 661,474 | |
| | Liabilities assumed on acquisitions | | 36,403 | | | - | | | 36,403 | |
| | Liabilities incurred | | 28,382 | | | - | | | 28,382 | |
| | Settled during the period | | (22,110 | ) | | - | | | (22,110 | ) |
| | Revisions (change in estimate) | | (46,627 | ) | | 3,767 | | | (42,860 | ) |
| | Disposals | | (708 | ) | | - | | | (708 | ) |
| | Accretion | | 23,099 | | | 400 | | | 23,499 | |
| | Decommissioning liabilities at December 31, 2011 | $ | 669,487 | | $ | 14,593 | | $ | 684,080 | |
| | Environmental remediation at December 31, 2011 | | 3,224 | | | - | | | 3,224 | |
| | Balance at December 31, 2011 | $ | 672,711 | | $ | 14,593 | | $ | 687,304 | |
| | | | | | | | | | | |
| | Decommissioning liabilities at December 31, 2011 | $ | 669,487 | | $ | 14,593 | | $ | 684,080 | |
| | Liabilities incurred | | 4,500 | | | - | | | 4,500 | |
| | Settled during the period | | (9,116 | ) | | - | | | (9,116 | ) |
| | Revisions (change in estimate) | | (4,592 | ) | | - | | | (4,592 | ) |
| | Accretion | | 10,061 | | | 216 | | | 10,277 | |
| | Decommissioning liabilities at June 30, 2012 | $ | 670,340 | | $ | 14,809 | | $ | 685,149 | |
| | Environmental remediation at June 30, 2012 | | 3,087 | | | - | | | 3,087 | |
| | Balance at June 30, 2012 | $ | 673,427 | | $ | 14,809 | | $ | 688,236 | |
| | | | | | | | | | | |
| | Current portion | $ | 23,847 | | $ | - | | $ | 23,847 | |
| | Non-current portion | | 649,580 | | | 14,809 | | | 664,389 | |
| | Balance at June 30, 2012 | $ | 673,427 | | $ | 14,809 | | $ | 688,236 | |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| 8. | Long-Term Liability |
| | |
| On May 30, 2012, Harvest amended certain aspects of its BlackGold oil sands project engineering, procurement and construction (“EPC”) contract, including revising the compensation terms from a lump sum price to a cost reimbursable price and confirming greater Harvest control over project execution. The cost pressures and resultant contract changes are expected to increase the net EPC costs to approximately $520 million from $311 million, after allowing for certain costs which are not reimbursable to the EPC contractor. Harvest and the EPC contractor also agreed to apply the cumulative progress payments made under the lump sum contract and the remaining deposit of $24.4 million as at May 30, 2012 towards costs incurred to date. |
| | |
| Under the amended EPC contract, a maximum of approximately $101 million will be paid in equal installments, without interest, over 10 years commencing on April 30, 2014. As at June 30, 2012, $2.0 million of such costs have been accumulated. |
| | |
| 9. | Bank Loan |
| | |
| Under the credit facility agreement, Harvest is required to maintain certain financial ratios. On June 29, 2012, Harvest amended the credit facility agreement to revise the maximum allowable total debt to annualized EBITDA ratio from 3.5:1 to the following: |
| | Twelve months ending | Total debt to annualized EBITDA |
| | June 30, 2012 | 4.25:1.0 or less |
| | September 30, 2012 | 4.25:1.0 or less |
| | December 31, 2012 | 4.00:1.0 or less |
| | March 31, 2013 | 3.75:1.0 or less |
| | June 30, 2013 and thereafter | 3.50:1.0 or less |
Except for the above, all other terms to the credit facility agreement remain unchanged.
At June 30, 2012, Harvest had $643.1 million drawn from the $800 million credit facility capacity (2011 - $358.9 million). The carrying value of the bank loan includes $2.8 million of deferred financial charges at June 30, 2012 (2011 - $3.3 million). For the three and six-month periods ended June 30, 2012, interest charges on bank loans aggregated to $4.7million and $8.1 million (2011 - $0.9 million and $1.3 million respectively), reflecting an effective interest rate of 2.84% for both periods (2011 – 2.94% and 2.99% respectively).
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| 10. | Capital Structure |
| | |
| Harvest considers its capital structure to be its credit facility, senior notes, convertible debentures and shareholder’s equity. |
| | | | | June 30, 2012 | | | December 31, 2011 | |
| | | Bank loan(1) | $ | 643,051 | | $ | 358,885 | |
| | | Senior notes (US$500 million )(2) | | 509,050 | | | 508,500 | |
| | | Principal amount of convertible debentures | | 733,973 | | | 733,973 | |
| | | | $ | 1,886,074 | | $ | 1,601,358 | |
| | | Shareholder’s equity | | 3,303,277 | | | 3,453,644 | |
| | | | $ | 5,189,351 | | $ | 5,055,002 | |
| | (1) | Excludes deferred financing fees |
| | (2) | Face value converted at the period end exchange rate |
Harvest’s primary objective in its management of capital resources is to have access to capital to fund its financial obligations as well as future growth. Harvest monitors its capital structure and makes adjustments according to market conditions to remain flexible while meeting these objectives. Accordingly, Harvest may adjust its capital spending programs, issue equity, issue new debt or repay existing debt.
Harvest evaluates its capital structure using the following financial ratios. These ratios are also included in the externally imposed capital requirements under the Company’s credit facility, senior notes and convertible debentures. Harvest was in compliance with all debt covenants at June 30, 2012.
| | | Covenant | June 30, 2012 | December 31, 2011 |
| | Senior debt(1)to Annualized EBITDA(3) | 3.00 to 1.0 or less | 1.42 | 0.73 |
| | Total debt(2)to Annualized EBITDA(3) | 4.25 to 1.0(4) or less | 3.82 | 2.72 |
| | Senior debt(1)to Capitalization(5) | 50% or less | 15% | 10% |
| | Total debt(2)to Capitalization(5) | 55% or less | 41% | 36% |
| | (1) | Senior debt consists of letters of credit of $8.9 million (2011 – $8.7 million), bank loan of $640.2 million (2011 - $355.6 million) and guarantees of $78.5 million (2011 - $92.1 million) at June 30, 2012. |
| | (2) | Total debt consists of senior debt, convertible debentures and senior notes. |
| | (3) | Annualized EBITDA is defined in Harvest’s credit facility agreement as earnings before finance costs, income tax expense or recovery, depletion, depreciation and amortization, exploration and evaluation costs, impairment of assets, unrealized gains or losses on risk management contracts, unrealized gains or losses on foreign exchange, gains or losses on disposition of assets and other non-cash items. |
| | (4) | The covenant ratio was changed from 3.5 to 1.0 to 4.25 to 1.0 on June 29, 2012. See note 9. |
| | (5) | Capitalization consists of total debt and shareholder’s equity less equity for BlackGold of $458.8 million at June 30, 2012 (2011 - $459.9 million). |
| | | | Three months ended | | | Six months ended | |
| | | | June 30 | | | June 30 | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Petroleum and natural gas sales, net of royalty | $ | 246,070 | | $ | 279,497 | | $ | 512,625 | | $ | 527,724 | |
| | Refinery products sales | | 1,280,221 | | | 515,146 | | | 2,435,627 | | | 1,518,877 | |
| | Effective portion of realized crude oil hedges | | 7,517 | | | (12,602 | ) | | 11,696 | | | (15,637 | ) |
| | | $ | 1,533,808 | | $ | 782,041 | | $ | 2,959,948 | | $ | 2,030,964 | |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| | | | Three months ended | | | Six months ended | |
| | | | June 30 | | | June 30 | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Interest and other finance charges | $ | 25,730 | | $ | 22,824 | | $ | 50,805 | | $ | 45,842 | |
| | Accretion of decommissioning and environmental remediation liabilities | | 5,177 | | | 6,047 | | | 10,330 | | | 11,843 | |
| | Less: capitalized interest | | (3,355 | ) | | (1,987 | ) | | (6,247 | ) | | (3,284 | ) |
| | | $ | 27,552 | | $ | 26,884 | | $ | 54,888 | | $ | 54,401 | |
| | | | Three months ended | | | Six months ended | | | | |
| | | | June 30 | | | June 30 | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Realized (gains) losses on foreign exchange | $ | (2,263 | ) | $ | 25 | | $ | (692 | ) | $ | (165 | ) |
| | Unrealized (gains) losses on foreign exchange | | 3,591 | | | (1,489 | ) | | 826 | | | (11,107 | ) |
| | | $ | 1,328 | | $ | (1,464 | ) | $ | 134 | | $ | (11,272 | ) |
| 14. | Supplemental Cash Flow Information |
| | | | Six months ended June 30 | |
| | | | 2012 | | | 2011 | |
| | Source (use) of cash: | | | | | | |
| | Accounts receivable and other | $ | 27,822 | | $ | (4,546 | ) |
| | Prepaid expenses and long-term deposit | | 27,495 | | | 43,835 | |
| | Inventories | | (38,997 | ) | | (32,900 | ) |
| | Accounts payable and accrued liabilities | | (116,023 | ) | | 40,985 | |
| | Net changes in non-cash working capital | $ | (99,703 | ) | $ | 47,374 | |
| | | | | | | | |
| | Changes relating to operating activities | | (39,161 | ) | | (48,933 | ) |
| | Changes relating to investing activities | | (61,192 | ) | | 93,496 | |
| | Add: Non-cash changes | | 650 | | | 2,811 | |
| | | $ | (99,703 | ) | $ | 47,374 | |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| 15. | Other Comprehensive Income (“OCI”) and Accumulated Other Comprehensive Income (“AOCI”) |
| | | | Foreign | | | Designated | | | | | | | |
| | | | Currency | | | Cash Flow | | | Actuarial | | | | |
| | | | Translation | | | Hedges, Net of | | | Loss, Net of | | | | |
| | | | Adjustment | | | Tax | | | Tax | | | Total | |
| | AOCI at December 31, 2010 | $ | (45,920 | ) | $ | (5,020 | ) | $ | (3,217 | ) | $ | (54,157 | ) |
| | Reclassification to net income of losses on cash flow hedges | | - | | | 7,050 | | | - | | | 7,050 | |
| | Gains on derivatives designated as cash flow hedges | | - | | | 12,371 | | | - | | | 12,371 | |
| | Actuarial loss | | - | | | - | | | (4,891 | ) | | (4,891 | ) |
| | Gains on foreign currency translation | | 21,480 | | | - | | | - | | | 21,480 | |
| | AOCI at December 31, 2011 | $ | (24,440 | ) | $ | 14,401 | | $ | (8,108 | ) | $ | (18,147 | ) |
| | Reclassification to net income of gains on cash flow hedges | | - | | | (8,471 | ) | | - | | | (8,471 | ) |
| | Gains on derivatives designated as cash flow hedges | | - | | | 8,165 | | | - | | | 8,165 | |
| | Actuarial loss | | - | | | - | | | (4,618 | ) | | (4,618 | ) |
| | Losses on foreign currency translation | | (69 | ) | | - | | | - | | | (69 | ) |
| | AOCI at June 30, 2012 | $ | (24,509 | ) | $ | 14,095 | | $ | (12,726 | ) | $ | (23,140 | ) |
The following table summarizes the impacts of the cash flow hedges on the OCI:
| | | | Three months ended June 30 | | | Six months ended June 30 | |
| | | | After - tax | | | Pre - tax | | | After - tax | | | Pre - tax | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | (Gains) losses reclassified from OCI to revenues | $ | (5,630 | ) | $ | 9,236 | | $ | (7,517 | ) | $ | 12,602 | | $ | (8,471 | ) | $ | 11,460 | | $ | (11,696 | ) | $ | 15,637 | |
| | Gains (losses) recognized in OCI | $ | 12,645 | | $ | 41,758 | | $ | 16,881 | | $ | 56,978 | | $ | 8,165 | | $ | (872 | ) | $ | 11,273 | | $ | (1,190 | ) |
| | Total | $ | 7,015 | | $ | 50,994 | | $ | 9,364 | | $ | 69,580 | | $ | (306 | ) | $ | 10,588 | | $ | (423 | ) | $ | 14,447 | |
The Company expects that $14.1 million of gains reported in AOCI will be released to net income within the next six months.
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| 16. | Financial Instruments |
| | |
| (a) Fair Values |
| The carrying value and fair value of Harvest’s financial instruments are disclosed below by financial instrument category: |
| | | | June 30, 2012 | | | December 31, 2011 | |
| | | | Carrying | | | | | | Carrying | | | | |
| | | | Value | | | Fair Value | | | Value | | | Fair Value | |
| | Financial assets | | | | | | | | | | | | |
| | Loans and Receivables | | | | | | | | | | | | |
| | Accounts receivable and other | $ | 184,430 | | $ | 184,430 | | $ | 212,252 | | $ | 212,252 | |
| | Held for Trading | | | | | | | | | | | | |
| | Cash and cash equivalents | | 5,189 | | | 5,189 | | | 6,607 | | | 6,607 | |
| | Risk management contracts | | 19,816 | | | 19,816 | | | 20,162 | | | 20,162 | |
| | Total Financial Assets | $ | 209,435 | | $ | 209,435 | | $ | 239,021 | | $ | 239,021 | |
| | Financial Liabilities | | | | | | | | | | | | |
| | Measured at Amortized Cost | | | | | | | | | | | | |
| | Accounts payable and accrued liabilities | | 348,125 | | | 348,125 | | | 464,148 | | | 464,148 | |
| | Bank loan | | 640,249 | | | 643,051 | | | 355,575 | | | 358,885 | |
| | Senior notes | | 497,044 | | | 542,138 | | | 495,674 | | | 523,119 | |
| | Convertible debentures | | 740,393 | | | 753,599 | | | 742,067 | | | 752,345 | |
| | Long-term liability | | 2,000 | | | 2,000 | | | – | | | – | |
| | Total Financial Liabilities | $ | 2,227,811 | | $ | 2,288,913 | | $ | 2,057,464 | | $ | 2,098,497 | |
(b) Risk Management Contracts
Harvest at times uses electricity price swap contracts to manage some of its price risk exposure. These swap contracts are not designated as hedges and are entered into for periods consistent with forecast electricity purchases. Harvest did not have any electricity price swap contacts during the three and six months ended June 30, 2012.
The Company enters into crude oil and foreign exchange contracts to reduce the volatility of cash flows from some of its forecast sales. Harvest designates all of its crude oil derivative contracts and certain foreign exchange contracts as cash flow hedges. The effective portion of the unrealized gains and losses is included in other comprehensive income. The effective portion of the realized gains and losses is removed from accumulated other comprehensive income and included in petroleum, natural gas, and refined product sales (see note 15). The ineffective portion of the unrealized and realized gains and losses recognized in the consolidated income statement from these cash flow hedges is shown below together with the realized and unrealized (gains) losses on power and currency risk management contracts:
| | | | Three months ended June 30 | |
| | | | 2012 | | | 2011 | |
| | | | | | | Crude | | | | | | | | | | | | Crude | | | | | | | |
| | | | Power | | | oil | | | Currency | | | Total | | | Power | | | oil | | | Currency | | | Total | |
| | Realized (gains) losses | $ | - | | $ | 20 | | $ | 154 | | $ | 174 | | $ | (333 | ) | $ | 349 | | $ | - | | $ | 16 | |
| | Unrealized (gains) losses | | - | | | 127 | | | 67 | | | 194 | | | 595 | | | (412 | ) | | (29 | ) | | 154 | |
| | | $ | - | | $ | 147 | | $ | 221 | | $ | 368 | | $ | 262 | | $ | (63 | ) | $ | (29 | ) | $ | 170 | |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| | | | Six months ended June 30 | |
| | | | 2012 | | | 2011 | |
| | | | | | | Crude | | | | | | | | | | | | Crude | | | | | | | |
| | | | Power | | | oil | | | Currency | | | Total | | | Power | | | oil | | | Currency | | | Total | |
| | Realized (gains) losses | $ | - | | $ | 20 | | $ | 154 | | $ | 174 | | $ | (2,616 | ) | $ | 408 | | $ | - | | $ | (2,208 | ) |
| | Unrealized gains | | - | | | (77 | ) | | - | | | (77 | ) | | (2,959 | ) | | (126 | ) | | - | | | (3,085 | ) |
| | | $ | - | | $ | (57 | ) | $ | 154 | | $ | 97 | | $ | (5,575 | ) | $ | 282 | | $ | - | | $ | (5,293 | ) |
The following is a summary of Harvest’s risk management contracts outstanding at June 30, 2012:
| | Contracts Designated as Hedges | | | | | |
| | Contract Quantity | Type of Contract | Term | Contract Price | | Fair Value | |
| | 4,200 bbls/day | Crude oil price swap | Jun – Dec 2012 | US $111.37/bbl | $ | 19,542 | |
| | US $468/day | Foreign exchange swap | Jun – Dec 2012 | $ 1.0236 Cdn/US | | 274 | |
| | | | | | $ | 19,816 | |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| 17. | Segment Information |
| | |
| Harvest operates in Canada and has two reportable operating segments: Upstream and Downstream. Harvest’s Upstream operations consist of development, production and subsequent sale of petroleum, natural gas and natural gas liquids, while its Downstream operations include the purchase of crude oil, the refining of crude oil, the sale of the refined products including a network of retail operations and the supply of refined products to commercial and wholesale customers. |
| | | | Three months ended June 30 | |
| | | | Downstream(2) | | | Upstream(2) | | | Total | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Petroleum, natural gas and refined products sales(1) | $ | 1,280,221 | | $ | 515,146 | | $ | 292,377 | | $ | 323,456 | | $ | 1,572,598 | | $ | 838,602 | |
| | Royalties | | - | | | - | | | (38,790 | ) | | (56,561 | ) | | (38,790 | ) | | (56,561 | ) |
| | Revenues | $ | 1,280,221 | | $ | 515,146 | | $ | 253,587 | | $ | 266,895 | | $ | 1,533,808 | | $ | 782,041 | |
| | | | | | | | | | | | | | | | | | | | |
| | Expenses | | | | | | | | | | | | | | | | | | |
| | Purchased products for resale and processing | | 1,238,803 | | | 477,012 | | | - | | | - | | | 1,238,803 | | | 477,012 | |
| | Operating | | 56,071 | | | 45,859 | | | 88,536 | | | 82,315 | | | 144,607 | | | 128,174 | |
| | Transportation and marketing | | 989 | | | 1,239 | | | 5,381 | | | 11,126 | | | 6,370 | | | 12,365 | |
| | General and administrative | | 150 | | | 441 | | | 17,962 | | | 14,817 | | | 18,112 | | | 15,258 | |
| | Exploration and evaluation | | - | | | - | | | 12,348 | | | 4,243 | | | 12,348 | | | 4,243 | |
| | Depletion, depreciation and amortization | | 26,737 | | | 22,276 | | | 147,059 | | | 127,934 | | | 173,796 | | | 150,210 | |
| | Gains on disposition of PP&E | | - | | | - | | | (363 | ) | | (440 | ) | | (363 | ) | | (440 | ) |
| | Risk management contracts losses | | - | | | - | | | 368 | | | 170 | | | 368 | | | 170 | |
| | Operating income (loss) | $ | (42,529 | ) | $ | (31,681 | ) | $ | (17,704 | ) | $ | 26,730 | | $ | (60,233 | ) | $ | (4,951 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | Finance costs | | | | | | | | | | | | | | 27,552 | | | 26,884 | |
| | Foreign exchange (gains) losses | | | | | | | | | | | | | | 1,328 | | | (1,464 | ) |
| | Loss before income tax | | | | | | | | | | | | | $ | (89,113 | ) | $ | (30,371 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | Income tax recovery | | | | | | | | | | | | | | (15,820 | ) | | (10,842 | ) |
| | Net loss | | | | | | | | | | | | | $ | (73,293 | ) | $ | (19,529 | ) |
| | (1) | Of the total Downstream revenue, one customer represents sales of $1.1 billion for the three months ended June 30, 2012 (2011 – two customers with sales of $223.0 million and $28.8 million). No other single customer within either segment represents greater than 10% of Harvest’s total revenue. |
| | (2) | There is no intersegment activity. |
| | | | Three months ended June 30 | |
| | | | Downstream | | | Upstream | | | Total | |
| | Capital Expenditures | | 2012 | | | 2011 | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Business acquisition | $ | - | | $ | - | | $ | - | | $ | (936 | ) | $ | - | | $ | (936 | ) |
| | Additions to PP&E | | 6,538 | | | 108,741 | | | 121,772 | | | 119,243 | | | 128,310 | | | 227,984 | |
| | Additions to E&E | | - | | | - | | | 2,863 | | | 6,258 | | | 2,863 | | | 6,258 | |
| | Property acquisitions, net | | - | | | - | | | 1,235 | | | 1,347 | | | 1,235 | | | 1,347 | |
| | Total expenditures | $ | 6,538 | | $ | 108,741 | | $ | 125,870 | | $ | 125,912 | | $ | 132,408 | | $ | 234,653 | |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| | | Six months ended June 30 | |
| | | Downstream(2) | | | Upstream(2) | | | Total | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| Petroleum, natural gas and refined products sales(1) | $ | 2,435,627 | | $ | 1,518,877 | | $ | 616,528 | | $ | 604,506 | | $ | 3,052,155 | | $ | 2,123,383 | |
| Royalties | | - | | | - | | | (92,207 | ) | | (92,419 | ) | | (92,207 | ) | | (92,419 | ) |
| Revenues | $ | 2,435,627 | | $ | 1,518,877 | | $ | 524,321 | | $ | 512,087 | | $ | 2,959,948 | | $ | 2,030,964 | |
| | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | |
| Purchased products for resale and processing | | 2,340,519 | | | 1,369,025 | | | - | | | - | | | 2,340,519 | | | 1,369,025 | |
| Operating | | 130,552 | | | 99,798 | | | 188,511 | | | 165,910 | | | 319,063 | | | 265,708 | |
| Transportation and marketing | | 2,354 | | | 2,933 | | | 11,067 | | | 14,129 | | | 13,421 | | | 17,062 | |
| General and administrative | | 300 | | | 882 | | | 30,115 | | | 28,339 | | | 30,415 | | | 29,221 | |
| Exploration and evaluation | | - | | | - | | | 19,084 | | | 10,454 | | | 19,084 | | | 10,454 | |
| Depletion, depreciation and amortization | | 53,306 | | | 41,676 | | | 291,542 | | | 249,278 | | | 344,848 | | | 290,954 | |
| Gains on disposition of PP&E | | - | | | - | | | (469 | ) | | (680 | ) | | (469 | ) | | (680 | ) |
| Risk management contracts (gains) losses | | - | | | - | | | 97 | | | (5,293 | ) | | 97 | | | (5,293 | ) |
| Impairment on PP&E | | - | | | - | | | 21,843 | | | - | | | 21,843 | | | - | |
| Operating income (loss) | $ | (91,404 | ) | $ | 4,563 | | $ | (37,469 | ) | $ | 49,950 | | $ | (128,873 | ) | $ | 54,513 | |
| | | | | | | | | | | | | | | | | | | |
| Finance costs | | | | | | | | | | | | | | 54,888 | | | 54,401 | |
| Foreign exchange (gains) losses | | | | | | | | | | | | | | 134 | | | (11,272 | ) |
| Income (Loss) before income tax | | | | | | | | | | | | | $ | (183,895 | ) | $ | 11,384 | |
| | | | | | | | | | | | | | | | | | | |
| Income tax recovery | | | | | | | | | | | | | | (38,521 | ) | | (7,051 | ) |
| Net income (loss) | | | | | | | | | | | | | $ | (145,374 | ) | $ | 18,435 | |
| | (1) | Of the total Downstream revenue, one customer represents sales of $2.0 billion for the six months ended June 30, 2012 (2011 – two customers with sales of $856.0 million and $130.4 million). No other single customer within either segment represents greater than 10% of Harvest’s total revenue. |
| | (2) | There is no intersegment activity. |
| | | Six months ended June 30 | |
| | | Downstream | | | Upstream | | | Total | |
| Capital Expenditures | | 2012 | | | 2011 | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| Business acquisition | $ | - | | $ | - | | $ | - | | $ | 512,523 | | $ | - | | $ | 512,523 | |
| Additions to PP&E | | 19,801 | | | 144,620 | | | 332,531 | | | 321,580 | | | 352,332 | | | 466,200 | |
| Additions to E&E | | - | | | - | | | 30,696 | | | 41,570 | | | 30,696 | | | 41,570 | |
| Property acquisitions (dispositions), net | | - | | | - | | | (753 | ) | | 3,385 | | | (753 | ) | | 3,385 | |
| Total expenditures | $ | 19,801 | | $ | 144,620 | | $ | 362,474 | | $ | 879,058 | | $ | 382,275 | | $ | 1,023,678 | |
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | | | | | | Other Long- | | | | |
| | | | Total Assets | | | PP&E | | | E&E | | | Term Assets | | | Goodwill | |
| | June 30, 2012 | | | | | | | | | | | | | | | |
| | Downstream | $ | 1,419,611 | | $ | 1,189,323 | | $ | - | | $ | - | | $ | - | |
| | Upstream | | 4,857,885 | | | 4,206,620 | | | 79,123 | | | 6,749 | | | 404,943 | |
| | Total | $ | 6,277,496 | | $ | 5,395,943 | | $ | 79,123 | | $ | 6,749 | | $ | 404,943 | |
| | December 31, 2011 | | | | | | | | | | | | | | | |
| | Downstream | $ | 1,408,112 | | $ | 1,222,512 | | $ | - | | $ | - | | $ | - | |
| | Upstream | | 4,876,258 | | | 4,177,875 | | | 74,517 | | | 7,105 | | | 404,943 | |
| | Total | $ | 6,284,370 | | $ | 5,400,387 | | $ | 74,517 | | $ | 7,105 | | $ | 404,943 | |
The following is a summary of Harvest’s contractual obligations and commitments as at June 30, 2012:
| | | | | | | | | | Maturity | | | | | | | |
| | | | 1 year | | | 2-3 years | | | 4-5 years | | | After 5 years | | | Total | |
| | Debt repayments(1) | $ | 106,796 | | $ | 1,270,228 | | $ | - | | $ | 509,050 | | $ | 1,886,074 | |
| | Debt interest payments(1) | | 102,238 | | | 148,669 | | | 77,320 | | | 8,749 | | | 336,976 | |
| | Purchase commitments(2) | | 234,712 | | | 152,480 | | | 20,000 | | | 60,000 | | | 467,192 | |
| | Operating leases | | 12,007 | | | 18,381 | | | 6,956 | | | 1,572 | | | 38,916 | |
| | Transportation agreements(3) | | 8,555 | | | 12,635 | | | 3,700 | | | 422 | | | 25,312 | |
| | Feedstock & other purchase
commitments(4) | | 709,089 | | | - | | | - | | | - | | | 709,089 | |
| | Employee benefits(5) | | 6,111 | | | 9,982 | | | 7,380 | | | 2,199 | | | 25,672 | |
| | Decommissioning liabilities and
environmental remediation liabilities(6) | | 23,847 | | | 47,694 | | | 34,880 | | | 1,349,715 | | | 1,456,136 | |
| | Total | $ | 1,203,355 | | $ | 1,660,069 | | $ | 150,236 | | $ | 1,931,707 | | $ | 4,945,367 | |
| | (1) | Assumes constant period end foreign exchange rate. |
| | (2) | Relates to drilling commitments, AFE commitments, BlackGold oil sands project commitment and Downstream capital commitments. |
| | (3) | Relates to firm transportation commitments. |
| | (4) | Includes commitments to purchase refinery crude stock under the supply and offtake agreement, purchased fuel and other additives. |
| | (5) | Relates to the expected contributions to employee benefit plans and long-term incentive plan payments. |
| | (6) | Represents the undiscounted obligation by period. |
| 19. | Related Party Transactions |
For the three and six months ended June 30, 2012, Harvest billed KNOC and certain subsidiaries for a total of $0.3 million and $0.8 million, respectively (2011 - $0.2 million and $0.4 million) primarily related to technical services provided by Harvest’s Global Technology and Research Centre (“GTRC”). As at June 30, 2012, $0.2 million (2011 - $1.1 million) remained outstanding from KNOC in accounts receivable. KNOC billed Harvest $0.1 million for the six months ended June 30, 2012 (2011 – $ nil) for reimbursement to KNOC for secondee salaries. As at June 30, 2012, $0.1 million (2011 - $0.6 million) remains outstanding in accounts payable.
KNOC Trading Corporation (“KNOC Trading”) is a wholly owned subsidiary of North Atlantic. KNOC Trading receives revenue from ANKOR E&P Holdings Corp. (“ANKOR”), a wholly owned U.S. subsidiary of KNOC, on a monthly basis by providing oil marketing service such as pipeline arrangement, reviewing oil marketing agreements, and other services. For the three and six months ended June 30, 2012, all of KNOC Trading’s revenue of $0.2 million and $0.3 million respectively (2011 - $nil) were derived from ANKOR.
| | INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Subsequent to June 30, 2012, Harvest agreed with its lenders to extend the credit facility agreement by one year to April 30, 2016.
