EXHIBIT 99.1
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[GRAPHIC OMITTED]
[LOGO - WESTERN OIL SAND]
WESTERN OIL SANDS RELEASES FIRST QUARTER RESULTS
CALGARY, AB, APRIL 23, 2003 - Western Oil Sands Inc. ("Western") is pleased to
present its first quarter 2003 results and to provide an update on our progress
towards commercial operations for the Athabasca Oil Sands Project (the
"Project"). Construction of the Project was completed in the fourth quarter of
2002, and we are now in the start-up phase of the Project, moving into
commercial operations. Since we are in the start-up phase, Western does not yet
have any operating revenue or expenses, and accordingly, Western incurred a loss
attributable to common shareholders of $2.4 million ($0.05 per share) for the
first quarter of 2003 (2002 - $1.8 million; $0.04 per share). Western expects
that commercial operations will begin in the second quarter of 2003, with
full-scale production at the Mine of 155,000 barrels per day of bitumen (31,000
for Western's share) which together with purchased feedstocks, will result in
the synthetic crude oil production of approximately 190,000 barrels per day
(38,000 barrels per day net to Western) at the Upgrader by the end of the third
quarter of 2003.
Commissioning, testing and start-up of the synthetic crude units is a
complex process and has been the primary focus at the Upgrader through the first
quarter of 2003. Production of bitumen at the Mine commenced at the end of last
year, but was delayed due to a fire on January 6, 2003. Fire damage was mainly
limited to electrical cables, instrumentation and insulation in the solvent
recovery area of the froth treatment plant. However, severe weather conditions
caused broader freezing damage and impeded progress in making repairs, adding
significantly to costs. Repairs to Train 1 of the froth treatment plant were
completed by the end of March and the production of bitumen resumed on April 4.
The Corridor Pipeline and related tankage were subsequently filled, making
bitumen from the Muskeg River Mine available for processing at the Scotford
Upgrader. In late March the Upgrader successfully started making light synthetic
crude, utilizing purchased feedstocks. On April 19, 2003 the AOSP achieved fully
integrated operations when the Scotford Upgrader began processing bitumen from
the Mine to manufacture synthetic crude oil products.
Western continues to focus on collecting on its cost overrun and
project delay insurance claims, in addition to the Project's construction
insurance claim. The costs of repairs for the fire and freeze damage have
increased to an estimate of $150 million ($30 million net to Western). Western
has extensive insurance coverage in place and is seeking to recover these costs
from insurers. The first interim submission totaling $45 million ($9 million for
Western's share) has been presented to insurers for payment, with further
submissions to follow. In respect of the cost overrun and project delay
insurance policy, claims in excess of $500 million have been submitted against
the $200 million policy limit. As a result of delays in receiving proceeds on
these claims, Western is considering obtaining additional financing.
The objective of the second quarter of 2003 is to complete the
transition from start-up to production. Repairs to Train 2 of the froth
treatment plant at the Mine are almost complete and these facilities are
expected to be available for use in May. Train 2 of the Scotford Upgrader will
be brought on stream once additional bitumen production becomes available. Some
production volatility is likely during initial operations. The focus will be on
ramping up to the designed production rate of 155,000 barrels per day of bitumen
by the end of the third quarter of 2003.
FINANCIAL RESULTS
Since the Project is in the start-up phase, Western does not have any operating
revenue or expenses; such revenue and expenses will commence once commercial
production begins, which is expected in the second quarter of 2003. During the
first quarter, Western incurred a loss attributable to common shareholders of
$2.4 million ($0.05 per share) compared to a loss of $1.8 million ($0.04 per
share) for the 2002 comparative period. The main components of the loss were
general and administrative expenses, future income tax and a charge for the
convertible notes.
General and administrative expenses increased from $1.3 million in the
first quarter of 2002 to $1.4 million in the first quarter of 2003 due to the
addition of marketing and administrative personnel as we prepare to enter the
operating phase. There was a future income tax recovery of $0.7 million (2002 -
$nil) recognized in the quarter related to the losses to be carried forward,
offset by Large Corporation Tax of $0.8 million (2002 - $0.4 million) consistent
with Western's increased capital base. There was a charge for the convertible
notes of $0.8 million in the quarter (2002 - $nil), representing the accretion
of the liability component of the convertible notes.
INVENTORY
As Western moves toward commercial production, inventories are being accumulated
for parts and supplies, purchased feedstocks and eventually synthetic crude
products. In the first quarter of 2003, the Project acquired $19 million ($3.8
million for Western's share) of parts and supplies inventory to be used for
repairs and maintenance, together with $7.5 million ($1.5 million for Western's
share) of purchased feedstocks. The feedstocks will be used at the Upgrader for
processing with the Project's bitumen to produce synthetic crude oil products.
CAPITAL EXPENDITURES
Western's capital expenditures in the quarter totaled $112.1 million. These
expenditures were comprised of $24.5 million for Western's share of construction
costs for the Project, $25.6 million in respect of capital repairs for the
January fire, $42.4 million of capitalized pre-operating costs, $15.8 million of
direct capitalized finance costs, $3.3 million of diluent purchases and $0.5
million of corporate assets.
Construction of the Project was completed in the fourth quarter of
2002. Western's share of the Project costs since inception total $1,176.6
million, including the fire repairs and capitalized pre-operating costs. The
original estimate of Western's share of repair costs for the fire was $15
million. Severe weather conditions caused broader freezing damage and impeded
progress in making repairs, adding significantly to costs. The costs of repairs
for the fire and freeze damage have increased to an estimate of $150 million
($30 million net to Western). Western has extensive insurance coverage in place
and is seeking to recover these costs from insurers. The first interim
submission totaling $45 million ($9 million for Western's share) has been
presented to insurers for payment, with further submissions to follow.
Capitalized pre-operating costs of $42.4 million relate to the commissioning and
testing costs for the Project, which are being capitalized during the
pre-commercial operations period.
Western capitalized $15.8 million of finance costs during the quarter
in respect of interest accrued on the Senior Secured Notes, bank standby fees
and other interest expenses.
The cost of diluent purchased has been capitalized, as it will be used
on a continuing basis for the transportation of bitumen from the Mine to the
Upgrader. It will be continually recycled and returned to the Mine for re-use.
Consistent with prior periods, Western capitalized $1.5 million during
the first quarter of 2003 relating to its share of costs for construction of the
Hydrogen Manufacturing Unit ("HMU") at the Upgrader. These costs are being
financed under a long-term capital lease. To date a total of $52.3 million has
been incurred and capitalized for Western's share of the HMU.
Western has US$450 million of Senior Secured Notes issued and
outstanding that mature on May 1, 2012. As a result of fluctuations in the
exchange rate of US to Canadian dollars between December 31, 2002 and March 31,
2003, Western capitalized an unrealized foreign exchange gain of $49.6 million
during the first quarter of 2003. At March 31, 2003, a cumulative unrealized
foreign exchange gain of $47.6 million has been capitalized as finance costs
during the pre-commercial operations period.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 2003, Western continued to draw on its $100 million
Senior Credit Facility and its $75 million Working Capital Facility, in the
amount of $31 million. At March 31, 2003, Western had drawn a total of $96
million on these two facilities.
Western successfully completed an equity offering in February 2003 for
gross proceeds of $50.2 million. This offering was required as a direct result
of not having received any of the insurance proceeds from our $200 million cost
overrun insurance policy.
During the quarter, an interim insurance claim for $45 million ($9
million net to Western) was submitted to recover costs related to the fire and
freeze damage at the Mine. While Western expects significant recoveries under
these insurance policies, to date no amounts have been received in respect of
these claims, and no amounts have been recognized in the financial statements as
at March 31, 2003. Upon receipt of proceeds such amounts will be credited
against capital assets. As a result of delays in receiving proceeds on these
claims, Western is considering obtaining additional financing.
WESTERN OIL SANDS INC.
CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31 As at December 31
($ thousands) 2003 2002
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(UNAUDITED)
ASSETS
Current Assets
Cash $ 9,710 $ 14,428
Accounts receivable 7,072 6,624
Inventory (Note 1) 5,314 4,175
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22,096 25,227
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Capital Assets (Note 2) 1,370,960 1,306,989
Deferred Charges 27,502 27,422
Future Income Taxes (Note 4) 1,664 --
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1,400,126 1,334,411
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1,422,222 1,359,638
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LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities 75,032 40,953
Convertible Notes 2,761 4,055
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77,793 45,008
Long-term Liabilities
Long-term Debt (Note 3) 757,185 775,820
Other 51,282 50,859
Future Income Taxes (Note 4) -- 454
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808,467 827,133
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886,260 872,141
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SHAREHOLDERS' EQUITY
Share Capital (Note 5) 475,806 426,275
Convertible Notes 85,239 83,945
Deficit (25,083) (22,723)
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535,962 487,497
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$ 1,422,222 $ 1,359,638
================================================================================
See accompanying Notes to the Consolidated Financial Statements
WESTERN OIL SANDS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
3 MONTHS ENDED MARCH 31
($ thousands, except per share amounts) 2003 2002
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(UNAUDITED) (Unaudited)
CORPORATE EXPENSES
General and administrative $ 1,439 $ 1,285
Depreciation 56 43
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LOSS BEFORE INCOME TAXES 1,495 1,328
Income Taxes (note 4) 116 427
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NET LOSS 1,611 1,755
Charge for Convertible Notes, net of tax 749 --
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LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS 2,360 1,755
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Deficit at Beginning of Period 22,723 12,437
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DEFICIT AT END OF PERIOD $25,083 $14,192
================================================================================
NET LOSS PER SHARE - BASIC AND DILUTED $ 0.05 $ 0.04
================================================================================
See accompanying Notes to the Consolidated Financial Statements
WESTERN OIL SANDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
3 MONTHS ENDED MARCH 31
2003 2002
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($ thousands)
(UNAUDITED) (Unaudited)
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss $ (1,611) $ (1,755)
Non-cash items:
Future Income Tax Recovery (note 4) (652) --
Depreciation 56 43
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CASH FROM OPERATIONS (2,207) (1,712)
Increase in non-cash working capital (note 10) (606) --
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(2,813) (1,712)
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FINANCING ACTIVITIES
Issue of share capital (note 5) 50,797 1,070
Share issue expenses (note 5) (2,187) --
Issue of long-term debt 31,000 139,014
Deferred financing costs (80) (148)
Charge for convertible notes (1,294) --
Repayment of other long-term liabilities (1,071) (675)
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CASH GENERATED 77,165 139,261
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INVESTING ACTIVITIES
Capital expenditures (112,168) (109,978)
Decrease (increase) in non-cash working capital (note 10) 33,098 (10,305)
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CASH INVESTED (79,070) (120,283)
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(Decrease) increase in Cash (4,718) 17,266
Cash at Beginning of Period 14,428 52,973
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CASH AT END OF PERIOD $ 9,710 $ 70,239
=========================================================================================
See accompanying Notes to the Consolidated Financial Statements
WESTERN OIL SANDS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts in thousands)
The interim consolidated financial statements include the accounts of Western
Oil Sands Inc. and its subsidiaries (the "Corporation"), and are presented in
accordance with Canadian generally accepted accounting principles. The interim
consolidated financial statements have been prepared using the same accounting
policies and methods of computation as the consolidated financial statements for
the year ended December 31, 2002. The disclosures provided below are incremental
to those included in the annual consolidated financial statements. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto in the Corporation's
annual report for the year ended December 31, 2002.
1. INVENTORY
March 31, 2003 December 31, 2002
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(Unaudited)
Product Inventory $ 1,507 $ 4,175
Parts, Supplies and Other 3,807 --
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$ 5,314 $ 4,175
================================================================================
2. CAPITAL ASSETS
March 31, 2003 December 31, 2002
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(Unaudited)
Oil Sands Project $ 1,305,139 $ 1,243,061
Oil Sands Project Assets Under
Capital Lease 52,353 50,859
Corporate Assets 14,056 13,601
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1,371,548 1,307,521
Less accumulated depreciation (588) (532)
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$ 1,370,960 $ 1,306,989
================================================================================
It is the Corporation's policy to capitalize carrying costs including interest
expense for capital assets acquired, constructed or developed over time up until
the point in time when the assets are substantially complete and after
commercial production has begun. As at March 31, 2003 $78.8 million of net
interest expense (December 31, 2002 - $63.6 million) has been capitalized as
part of the Oil Sands Project. Cash interest paid for the three months ended
March 31, 2003 was $0.7 million (2002 - $5.3 million). Cash interest received
for the three months ended March 31, 2003 was $0.1 million (2002 - $0.3
million).
3. LONG-TERM DEBT
March 31, 2003 December 31, 2002
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(Unaudited)
US$450 million Senior Secured Notes $ 661,185 $ 710,820
Senior Credit Facility 52,000 45,000
Revolving Facility 44,000 20,000
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$ 757,185 $ 775,820
================================================================================
On January 30, 2003 the Corporation increased the availability under its $50
million Revolving Facility by $25 million to a total of $75 million, with the
addition of another Canadian chartered bank to the syndicate.
The Corporation's US dollar denominated Senior Secured Notes (the "Notes") is
translated into Canadian dollars at the period end exchange rate. The unrealized
foreign exchange gain arising on the Notes was $49.6 million for the three
months ended March 31, 2003.
4. INCOME TAX
- --------------------------------------------------------------------------------
Three months ended Three months ended
March 31, 2003 March 31, 2002
- --------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Large Corporation Tax $ 768 $ 427
Future Income Tax Recovery (652) --
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$ 116 $ 427
================================================================================
The future income tax asset (liability) consists of:
- --------------------------------------------------------------------------------
March 31, 2003 December 31, 2002
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(Unaudited)
Future Income Tax Assets:
Net losses carried forward $ 20,302 $ 19,069
Share issue costs 3,017 2,096
Debt issue costs 1,350 1,386
Future Income Tax Liabilities:
Renunciation of deductions for
flow-through shares (23,005) (23,005)
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NET FUTURE INCOME TAX ASSET (LIABILITY) $ 1,664 $ (454)
================================================================================
5. SHARE CAPITAL
ISSUED AND OUTSTANDING:
Number of Shares Amount
- --------------------------------------------------------------------------------
COMMON SHARES
Balance at December 31. 2002 47,742,471 $ 414,312
Issued on exercise of employee stock options 66,000 572
Issued for cash 2,050,000 50,225
Share issue costs, net of tax -- (1,266)
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BALANCE AT MARCH 31, 2003 49,858,471 463,843
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CLASS D PREFERRED SHARES, SERIES A
Balance at December 31, 2002 and March 31, 2003 666,667 11,963
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TOTAL ISSUED SHARE CAPITAL AT MARCH 31, 2003 50,525,138 $ 475,806
===========
OUTSTANDING:
Class A Warrants 494,224
Stock Options 1,384,000
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DILUTED SHARES AT MARCH 31, 2003 52,403,362
==================================================================
On February 7, 2003 the Corporation completed a public offering for the issuance
of 2,050,000 Common Shares for total proceeds of $50.2 million, before
consideration of the share issue costs of $2.2 million ($1.3 million net of
tax). The offering was underwritten by a syndicate of Canadian underwriters and
undertaken through the filing of a short form prospectus. Proceeds of the
offering were used to pay down certain amounts that had been drawn on the bank
debt and to fund the capital expenditures.
The Corporation has 494,224 Class A Warrants outstanding. Each Class A Warrant
entitles the holder to purchase one Common Share at $2.50 per share until five
years after start-up of the oil sands project. In addition the Corporation had
5,629,641 call obligations that expired March 31, 2003.
6. EARNINGS PER SHARE
The weighted average number of shares for the three-month periods ended March
31, 2003 and 2002 are 49,646,110 and 48,247,477 respectively. Due to a loss for
the periods, zero incremental shares are included for the diluted earnings per
share weighted average number because the effect would be anti-dilutive.
7. STOCK-BASED COMPENSATION
No compensation expense has been recognized when stock options were granted. Had
compensation expense been determined based on the fair value method for awards
made after December 31, 2001, the Corporation's net income and earnings per
share would have been adjusted to the proforma amounts indicated below:
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
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(Unaudited) (Unaudited)
Compensation Expense $ 237 $ 77
Loss Attributable to Common Shareholders
- as reported 2,360 1,755
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Loss Attributable to Common Shareholders
- proforma $ 2,597 $ 1,832
================================================================================
Basic Loss per share - as reported $ 0.05 $ 0.04
Basic Loss per share - proforma $ 0.05 $ 0.04
================================================================================
The proforma amounts exclude the effect of stock options granted prior to
January 1, 2002. The weighted average fair value of the 142,000 options granted
during the period was $8.67 per option using the Black-Scholes option pricing
model. The following table sets out the assumptions used in applying the
Black-Scholes model:
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
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Risk free interest rate 4.77% 4.61%
Expected life (in years) 5.00 5.00
Expected volatility 0.30 0.30
Dividend per share -- --
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8. COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Corporation and the owners of the oil sands Joint Venture have entered into
long-term operating lease obligations for certain equipment related to the oil
sands project. The term of these lease obligations is between three and seven
years, and the agreements provide for a committed payment of 85 per cent of the
original cost of the equipment to the lessor at the end of the terms. The
Corporation anticipates its share of the final value of the leased equipment
will total between $40 and $60 million. At March 31, 2003 the Corporation's
share of committed payments amounted to $37.4 million.
(b) Contingencies
During the three months ended March 31, 2003 the Corporation has submitted
claims, under the insurance coverage provided in our Joint Venture construction
policies, in respect of the fire that occurred in January 2003 at the Muskeg
River Mine extraction plant. The Corporation has extensive insurance coverage in
place and is seeking to recover these costs from insurers. While an initial
interim claim for $45 million ($9 million for the Corporation's share) has been
submitted, no amount has been recognized in these statements relating to this
insurance policy nor will an amount be recognized until the proceeds are
received.
9. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Corporation has entered into various commodity pricing agreements designed
to mitigate the exposure to the volatility of crude oil prices in Canadian
dollars. The agreements are summarized as follows at March 31, 2003:
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Instrument Notional Volume Hedge Period Price Unrealized
(Barrels per day) Received Gain (Loss)
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WTI Swaps 4,500 April 1, 2003 to March 31, 2004 Cdn$39.72 $(0.3) million
WTI Swaps 9,000 April 1, 2004 to March 31, 2005 Cdn$36.95 $ 1.9 million
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10. CHANGES IN NON-CASH WORKING CAPITAL
Three Months Ended Three Months Ended
Source (Use) March 31, 2003 March 31, 2002
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Operating Activities
Accounts receivable $ 814 $ --
Inventory (1,139) --
Accounts payable and accrued liabilities (281) --
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$ (606) $ --
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Investing Activities
Accounts receivable $(1,262) $ --
Accounts payable and accrued liabilities 34,360 (10,305)
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$33,098 $(10,305)
================================================================================
The Common Shares of Western are listed on the Toronto Stock Exchange under the
symbol "WTO".
FOR FURTHER INFORMATION PLEASE CONTACT:
Guy J. Turcotte David A. Dyck
President Vice-President, Finance
and Chief Executive Officer and Chief Financial Officer
(403) 233-1700 (403) 233-1700
THIS INFORMATION INCLUDES "FORWARD LOOKING STATEMENTS" BASED UPON CURRENT
EXPECTATIONS, ESTIMATES AND PROJECTIONS OF FUTURE PRODUCTION, PROJECT START-UPS
AND FUTURE CAPITAL SPENDING, THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED BY
THE CORPORATION. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO,
CHANGES IN; MARKET CONDITIONS, LAW OR GOVERNMENT POLICY, OPERATING CONDITIONS
AND COSTS, PROJECT SCHEDULES, OPERATING PERFORMANCE, DEMAND FOR OIL, GAS AND
RELATED PRODUCTS, PRICE AND EXCHANGE RATE FLUCTUATIONS, COMMERCIAL NEGOTIATIONS
OR OTHER TECHNICAL AND ECONOMIC FACTORS.
NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES
OR DISSEMINATION IN THE UNITED STATES