EXHIBIT 4.5
-----------
Consolidated Financial Statements of
BAYTEX ENERGY LTD.
December 31, 2002 and 2001
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF BAYTEX ENERGY LTD.
We have audited the consolidated balance sheets of Baytex Energy Ltd. as at
December 31, 2002 and 2001 and the consolidated statements of operations and
deficit and of cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
On March 3, 2003, we issued two additional reports to the board of directors and
shareholders of Baytex Energy Ltd. on the consolidated financial statements for
the same periods, prepared in accordance with Canadian generally accepted
accounting principles, the first of which did not include Note 17, United States
Accounting Principles and Reporting and Note 18, Condensed Consolidating
Financial Information, (which pertains to United States reporting requirements)
and the second of which did include the above mentioned notes, but only
reconciled to United States generally accepted accounting principles for annual
filing purposes.
Calgary, Alberta /s/ Deloitte & Touche LLP
March 3, 2003 Chartered Accountants
COMMENT BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING
In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) outlining
changes in accounting principles that have been implemented in the financial
statements. As discussed in Note 2 to the consolidated financial statements, in
2002 the Company changed its method of accounting for foreign currency
translation to conform to the Canadian Institute of Chartered Accountants
recommendation 1650 and adopted the new recommendation 3870 with respect to
stock-based compensation.
Calgary, Alberta /s/ Deloitte & Touche LLP
March 3, 2003 Chartered Accountants
BAYTEX ENERGY LTD.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2002 AND 2001
(THOUSANDS)
- --------------------------------------------------------------------------------
2002 2001
----------------------
(NOTE 2)
ASSETS
Current assets
Cash $ 4,098 $ --
Accounts receivable 52,667 44,300
Properties held for sale -- 46,895
----------------------
56,765 91,195
Deferred charges and other assets 8,679 8,674
Petroleum and natural gas properties (note 3)
(includes costs of unproved properties at December 31, 2002 of
$80,300; December 31, 2001 - $85,300) 932,316 867,177
----------------------
$ 997,760 $ 967,046
======================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 92,563 $ 64,334
Bank loan (note 4) -- 73,820
Current portion of long-term debt (note 5) -- 2,000
----------------------
92,563 140,154
Long-term debt (note 5) 326,977 330,102
Deferred credits (note 6) 12,181 18,694
Provision for future site restoration costs 21,950 20,541
Future income taxes (note 9) 184,402 146,446
----------------------
638,073 655,937
----------------------
SHAREHOLDERS' EQUITY
Share capital (note 7) 398,176 394,734
Deficit (38,489) (83,625)
----------------------
359,687 311,109
----------------------
$ 997,760 $ 967,046
======================
Commitments (note 13)
ON BEHALF OF THE BOARD
/s/ John A. Brussa /s/ W.A. Blake Cassidy
- ----------------------- ---------------------------
JOHN A. BRUSSA W. A. BLAKE CASSIDY
DIRECTOR DIRECTOR
See accompanying notes to the consolidated financial statements.
BAYTEX ENERGY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
YEARS ENDED DECEMBER 31, 2002 AND 2001
(THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
2002 2001
----------------------
(NOTE 2)
REVENUE
Petroleum and natural gas sales $ 365,860 $ 329,700
Royalties (58,922) (57,805)
----------------------
306,938 271,895
----------------------
EXPENSES
Operating 75,228 83,439
General and administrative 6,743 5,262
Interest (note 5) 25,217 32,942
Foreign exchange (gain) loss (note 2) (2,691) 16,262
Depletion and depreciation (note 3) 106,834 367,384
Site restoration costs 2,799 3,912
----------------------
214,130 509,201
----------------------
INCOME (LOSS) BEFORE INCOME TAXES 92,808 (237,306)
--------- ---------
INCOME TAXES (RECOVERY) (note 9)
Current 9,716 7,128
Future 37,956 (107,327)
----------------------
47,672 (100,199)
----------------------
NET INCOME (LOSS) 45,136 (137,107)
RETAINED EARNINGS (DEFICIT), BEGINNING OF YEAR, AS PREVIOUSLY REPORTED (75,954) 52,555
ACCOUNTING POLICY CHANGE (note 2) (7,671) 927
----------------------
RETAINED EARNINGS (DEFICIT), BEGINNING OF YEAR, AS RESTATED (83,625) 53,482
----------------------
DEFICIT, END OF YEAR $ (38,489) $ (83,625)
======================
NET INCOME (LOSS) PER COMMON SHARE (note 8)
Basic $ 0.86 $ (2.77)
======================
Diluted $ 0.85 $ (2.77)
======================
See accompanying notes to the consolidated financial statements.
BAYTEX ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
2002 2001
----------------------
CASH PROVIDED BY (USED IN): (NOTE 2)
OPERATING ACTIVITIES
Net income (loss) $ 45,136 $(137,107)
Items not affecting cash:
Site restoration costs 2,799 3,912
Amortization of deferred charges 1,052 946
Foreign exchange (gain) loss (2,691) 16,262
Depletion and depreciation 106,834 367,384
Future income taxes (recovery) 37,956 (107,327)
----------------------
Cash flow from operations 191,086 144,070
Change in non-cash working capital (note 10) 1,272 5,682
Increase in deferred charges (1,057) --
Increase (decrease) in deferred credits (note 6) (18,694) 18,694
----------------------
172,607 168,446
----------------------
FINANCING ACTIVITIES
Issue of senior subordinated term notes -- 227,895
Decrease in bank loan and other debt (76,254) (88,474)
Increase in deferred charges -- (9,037)
Increase in deferred credits (note 6) 12,181 --
Repurchase of common shares (note 7) (55) (860)
Issue of common shares 3,497 1,444
----------------------
(60,631) 130,968
----------------------
INVESTING ACTIVITIES
Corporate acquisitions (note 14) -- (249,152)
Items not affecting cash
Shares issued on acquisition -- 68,104
Assumption of long-term debt -- 36,356
Assumption of working capital -- (2,734)
----------------------
-- (147,426)
Petroleum and natural gas property expenditures (182,048) (189,283)
Disposal of petroleum and natural gas properties 55,580 62,582
Properties held for sale (46,895) 46,895
Change in non-cash working capital (note 10) 65,485 (72,182)
----------------------
(107,878) (299,414)
----------------------
CHANGE IN CASH DURING THE YEAR 4,098 --
CASH, BEGINNING OF YEAR -- --
----------------------
CASH, END OF YEAR $ 4,098 $ --
======================
See accompanying notes to the consolidated financial statements.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles within the framework of the
accounting policies summarized below.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
net income for each of the years ended December 31, 2002 and 2001 and the
determination of shareholders' equity and financial position as at December 31,
2002 and 2001 to the extent summarized in Note 17.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries and partnership from the respective dates of
acquisition of the subsidiary companies. Inter-company transactions and balances
are eliminated upon consolidation.
MEASUREMENT UNCERTAINTY
The preparation of financial statements in accordance generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of certain assets and liabilities and disclosure of
contingent expenses during each reporting period. Management believes its
estimates and assumptions are reasonable; however, amounts recorded for
depreciation and depletion and amounts used for ceiling test calculations are
based on estimates of petroleum and natural gas reserves and future costs
required to develop those reserves. The Company's reserve estimates are reviewed
annually by an independent engineering firm. By their nature, these estimates of
reserves and the related future cash flows are subject to measurement
uncertainty, and the impact on the financial statements of future periods could
be material.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include monies on deposit and short-term investments
accounted for at cost that have a maturity date of not more that 90 days.
PETROLEUM AND NATURAL GAS OPERATIONS
The Company follows the full cost method of accounting for its petroleum and
natural gas operations whereby all costs relating to the exploration for and
development of petroleum and natural gas reserves are capitalized in one
Canadian cost centre and charged against income, as set out below. Such costs
include land acquisition, drilling of productive and non-productive wells,
geological and geophysical, production facilities, carrying costs directly
related to unproved properties and corporate expenses directly related to
acquisition, exploration and development activities and do not include any costs
related to production or general overhead expenses. These costs along with
estimated future costs that are based on current costs and that are incurred in
developing proved reserves, are depleted and depreciated on a unit of production
basis using estimated gross proved petroleum and natural gas reserves. For
purposes of this calculation, petroleum and natural gas reserves are converted
to a common unit of measurement on the basis of their relative energy content
where six thousand cubic feet of gas equates to one barrel of oil. Costs of
acquiring and evaluating unproved properties are excluded from costs subject to
depletion and depreciation until it is determined whether proved reserves are
attributable to the properties or impairment occurs. Unproved properties are
evaluated for impairment on an annual basis.
Gains or losses on sales of properties are recognized only when crediting the
proceeds to costs would result in a change of 20 percent or more in the
depletion rate.
The net amount at which petroleum and natural gas properties are carried is
subject to a cost recovery test (the "ceiling test"). Under this test, an
estimate is made of the ultimate recoverable amount from future net revenues
using proved reserves and period end prices, plus the net costs of major
development projects and unproved
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
properties, less future removal and site restoration costs, overhead, financing
costs and income taxes. If the net carrying costs exceed the ultimate
recoverable amount, additional depletion and depreciation is provided.
PROVISION FOR FUTURE SITE RESTORATION COSTS
Estimates are made of the future site restoration costs relating to the
Company's petroleum and natural gas properties at the end of their economic
life, based on year end values, in accordance with current legislative
requirements and industry practice. Annual charges are provided for on a unit of
production method. Actual expenditures incurred are applied against the
provision for future site restoration costs.
JOINT INTERESTS
A portion of the Company's exploration, development and production activities is
conducted jointly with others. These consolidated financial statements reflect
only the Company's proportionate interest in such activities.
REVENUE RECOGNITION
Revenue associated with the production and sales of crude oil and natural gas is
recognized when title passes from the Company to its customer.
FOREIGN CURRENCY TRANSLATION
Foreign currency denominated monetary items are translated into Canadian dollars
at the exchange rate in effect at the balance sheet date. Effective January 1,
2002, the Company retroactively adopted the Canadian Institute of Chartered
Accountants (CICA) amended accounting standard with respect to accounting for
foreign currency translation. As a result of the amendments, all exchange gains
and losses on long-term monetary items that do not qualify for hedge accounting
are recognized in income.
Foreign denominated revenue and expenses are translated at the monthly average
rate of exchange. Translation gains and losses are included in net income.
DEFERRED CHARGES
Financing costs related to the issuance of the senior secured term notes and the
senior subordinated term notes have been deferred and are amortized over the
term of the respective notes on a straight-line basis.
FINANCIAL INSTRUMENTS
The Company formally documents its risk management objectives and strategies,
including the permitted use of derivative financial instruments. The Company
utilizes derivative financial instruments to manage exposures to fluctuations in
commodity prices, interest rates and foreign currency exchange rates. All
transactions of this nature entered into by the Company are related to an
underlying financial position or to future petroleum and natural gas production.
The Company does not use derivative financial instruments for trading purposes.
Costs and gains on derivative contracts are recognized in income in the same
period that the transactions are settled. The fair values of derivative
instruments are not recorded in the balance sheet.
Gains and losses related to derivative financial instruments that have been
closed prior to the settlement dates are deferred and recognized in the
statement of operations over the original settlement period.
FUTURE INCOME TAXES
Income taxes are accounted for under the liability method of tax allocation,
which determines future income taxes based on the differences between assets and
liabilities reported for financial accounting purposes and those reported for
tax purposes. Future income taxes are calculated using tax rates anticipated to
apply in periods that temporary differences are expected to reverse.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FLOW-THROUGH SHARES
The Company has financed a portion of its exploration and development activities
through the issue of flow-through shares. Under the terms of the flow-through
share agreements, the tax attributes of the related expenditure are renounced to
the subscribers. Accordingly, the carrying value of the expenditures incurred
and the shares issued are recorded net of tax benefits renounced to the
subscribers. The Company records the gross carrying value of the expenditures
and records a future tax liability for the tax benefits renounced to
subscribers.
STOCK-BASED COMPENSATION
The Company's stock-based compensation plans are described in note 7. The
Company accounts for employee stock options based on intrinsic values. No
compensation expense is recognized when stock options are issued. The
consideration paid on the exercise of stock options is credited to share
capital. Benefits paid under the stock appreciation rights plan are charged to
net income.
PER SHARE AMOUNTS
Basic net income per share and basic cash flow from operations per share are
computed by dividing net income and cash flow from operations by the weighted
average number of common shares outstanding during the year. Diluted per share
amounts reflect the potential dilution that could occur if options or warrants
to purchase common shares were exercised. The treasury stock method is used to
determine the dilutive effect of stock options and warrants, whereby any
proceeds from the exercise of stock options or other dilutive instruments are
assumed to be used to purchase common shares at the average market price during
the period.
2. CHANGES IN ACCOUNTING POLICY
FOREIGN CURRENCY
Effective January 1, 2002, the Company retroactively adopted the CICA amended
accounting standard with respect to accounting for foreign currency translation.
As a result of the amendments, all exchange gains and losses on long-term
monetary items that do not qualify for hedge accounting are recognized in
income. Previously, these exchange gains and losses were deferred and amortized
over the remaining life of the monetary item. The impact of the amended standard
on the year ended December 31, 2002 was to increase net income by $1.8 million
(2001 - decrease of $8.6 million). The effect of this change on the December 31,
2001 Consolidated Balance Sheet is an elimination of the unrealized foreign
exchange loss of $13.7 million, a decrease in future income taxes of $6.0
million, and an increase in the deficit of $7.7 million.
STOCK-BASED COMPENSATION
Effective January 1, 2002, the Company adopted the new recommendations of the
CICA with respect to stock-based compensation. In accordance with the new
standard, the Company has elected to continue its policy of accounting for
employee stock options based on intrinsic values and will disclose the pro forma
results of using the fair value based method. The new recommendations apply to
options granted after December 31, 2001.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET CLASSIFICATION OF CALLABLE DEBT OBLIGATIONS
Effective January 1, 2002, the Company has classified borrowing under its bank
facilities as a current liability as required by new CICA guidance. The bank
loan at December 31, 2001 has been restated to conform to the current
presentation.
3. PETROLEUM AND NATURAL GAS PROPERTIES
-------------------------------
AS AT DECEMBER 31,
-------------------------------
2002 2001
-------------------------------
Petroleum and natural gas properties $ 1,989,246 $ 1,817,273
Accumulated depletion and depreciation (1,056,930) (950,096)
-------------------------------
$ 932,316 $ 867,177
===============================
During 2002, $6.7 million (2001 - $5.3 million) of corporate expenses relating
to exploration and development activities were capitalized. In calculating the
depletion and depreciation provision for 2002, $80.3 million (2001 - $85.3
million) of costs relating to undeveloped properties and materials and supplies
of $5.5 million (2001- $7.1 million) were excluded from costs subject to
depletion and depreciation.
As a result of the ceiling test performed at December 31, 2001, the Company
recorded additional depletion and depreciation on its petroleum and natural gas
properties of $234.5 million ($131.3 million net of income tax).
At December 31, 2002, the estimated future site restoration costs to be accrued
over the life of the remaining proved reserves are $26.2 million (2001 - $30.0
million).
4. BANK LOAN
----------------------
AS AT DECEMBER 31,
----------------------
2002 2001
----------------------
Bank loan $ -- $ 73,820
=======================
BANK LOAN
The bank loan facilities consist of an operating loan and a 364-day revolving
loan, which are provided by a syndicate of chartered banks. The facilities can
be drawn in either Canadian or U.S. funds and bear interest at the agent bank's
prime lending rate, bankers' acceptance rates plus applicable margins or LIBOR
rates plus applicable margins. The facilities are subject to periodic review and
are secured by a charge over all of the Company's assets. The security is shared
pari passu with the senior secured term notes. At December 31, 2002, the
facilities are limited to total commitment under the facilities of $77 million
and a $165 million borrowing base of total senior funded debt, which is defined
to include the senior secured term notes.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. LONG-TERM DEBT
-------------------------
AS AT DECEMBER 31,
-------------------------
2002 2001
-------------------------
Senior secured term notes (US$57 million) $ 90,037 $ 90,778
Senior subordinated term notes (US$150 million) 236,940 238,890
Other long-term debt -- 2,434
-------------------------
326,977 332,102
Less: current portion -- 2,000
-------------------------
$326,977 $330,102
=========================
SENIOR SECURED TERM NOTES
On November 13, 1998, the Company issued US$57 million of senior secured term
notes, bearing interest at 7.23 percent payable quarterly with principal
repayable on November 13, 2004. These notes are governed by financial and other
corporate covenants and are secured by a charge over all of the Company's
assets, which security is shared pari passu with the bank loan facilities.
During 2002, the Company terminated an outstanding interest rate swap agreement
associated with these notes. The gain from the settlement of this contract has
been deferred and is being amortized as a reduction of interest expense over the
original term of the agreement (note 6).
SENIOR SUBORDINATED TERM NOTES
On February 12, 2001, the Company issued US$150 million of senior subordinated
term notes bearing interest at 10.5 percent payable semi-annually with principal
repayable on February 15, 2011. These notes are unsecured and are subordinate to
the Company's bank facilities and senior secured term notes. During 2002, the
Company terminated outstanding interest rate swap agreements associated with
these notes. The gain from the settlement of these contracts has been deferred
and is being amortized as a reduction of interest expense over the original term
of the agreements (note 6).
INTEREST EXPENSE
The Company has incurred interest expense on its outstanding debt as follows:
------------------------
2002 2001
------------------------
Bank loan $ 760 $ 4,620
Amortization of deferred charges 1,052 946
Long-term debt 23,405 27,376
------------------------
Total interest $ 25,217 $ 32,942
========================
6. DEFERRED CREDITS
------------------------
AS AT DECEMBER 31,
------------------------
2002 2001
------------------------
Deferred interest swap settlement (note 5) $ 12,181 $ --
Deferred commodity contract gain -- 18,694
------------------------
$ 12,181 $ 18,694
========================
In August 2002, the Company terminated all outstanding interest rate swap
agreements for total proceeds of $14.1 million. This amount has been deferred
and is being amortized as a reduction of interest expense over the original
terms of the agreements.
During 2001, the Company renegotiated certain derivative contracts related to
2002 commodity prices and received a net payment of $18.7 million. This amount
was recognized in income during 2002.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. SHARE CAPITAL
AUTHORIZED
The Company has an unlimited number of common shares in its authorized share
capital.
ISSUED
------------------------------------------------
2002 2001
------------------------------------------------
# SHARES AMOUNT # SHARES AMOUNT
------------------------------------------------
Balance, beginning of year 52,008 $ 394,734 45,797 $ 326,767
Shares issued for corporate acquisitions (note 14) -- -- 6,119 68,104
Stock options exercised 820 3,497 314 1,444
Normal course issuer bid (9) (55) (222) (860)
Future tax related to flow-through shares -- -- -- (721)
------------------------------------------------
Balance, end of year 52,819 $ 398,176 52,008 $ 394,734
================================================
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Company grants stock options to its employees and directors at the market
price of the common shares at the time of the grant. The options vest over three
years and have a term of four years. At December 31, 2002, 3.7 million common
shares (2001 - 4.6 million common shares) of the Company are reserved under the
stock option plan for issuance. Of the 5.1 million options outstanding at
December 31, 2002, 1.4 million options are subject to shareholder ratification.
-------------------------------------------------
WEIGHTED AVERAGE
# OPTIONS PRICE RANGE EXERCISE PRICE
-------------------------------------------------
Outstanding December 31, 2000 4,042 $ 3.30 to $ 15.50 $ 8.26
Granted 2,478 $ 3.51 to $ 13.30 $ 6.17
Exercised (314) $ 3.30 to $ 12.25 $ 4.84
Cancelled (1,738) $ 3.80 to $ 15.50 $ 11.25
-------------------------------------------------
OUTSTANDING DECEMBER 31, 2001 4,468 $ 3.30 to $ 10.75 $ 6.19
Granted 1,682 $ 4.40 to $ 7.97 $ 7.61
Exercised (820) $ 3.30 to $ 6.10 $ 4.27
Cancelled (204) $ 4.72 to $ 7.67 $ 5.78
------------------------------------------------
OUTSTANDING DECEMBER 31, 2002 5,126 $ 3.51 to $ 10.75 $ 6.98
=================================================
The following table summarizes information about the stock options outstanding
at December 31, 2002:
------------------------------------------------------------------------------------------
NUMBER OUTSTANDING WEIGHTED WEIGHTED NUMBER EXERCISABLE WEIGHTED
AT DECEMBER 31, AVERAGE AVERAGE AT DECEMBER 31, AVERAGE
2002 REMAINING EXERCISE 2002 EXERCISE
TERM PRICE PRICE
------------------------------------------------------------------------------------------
(YEARS)
$ 3.51 TO $ 5.00 2,029 2.2 $ 4.52 901 $ 4.27
$ 5.01 TO $ 7.00 315 2.8 $ 6.61 77 $ 6.35
$ 7.01 TO $ 9.00 1,712 3.4 $ 7.87 214 $ 8.76
$ 9.01 TO $ 10.75 1,070 1.8 $ 10.32 713 $ 10.32
------------------------------------------------------------------------------------------
TOTAL 5,126 2.5 $ 6.98 1,905 $ 7.12
==========================================================================================
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company accounts for its stock options using intrinsic values. On this
basis, compensation costs are not required to be recognized in the financial
statements for stock options granted at market value. Had compensation costs for
the Company's stock option plan been determined based on the fair-value method
at the dates of grants under the plan after January 1, 2002, the Company's
pro-forma net income for the year ended December 31, 2002 would have been
reduced by $0.6 million and net income per share would be $0.85. The weighted
average fair market value of options granted in 2002 was $3.65 per option. The
fair value of the stock options granted is estimated on the grant date using the
Black-Scholes option-pricing model using the following assumptions: risk free
interest rate of four percent, expected life of four years; and expected
volatility of 57 percent.
The Company had granted stock appreciation rights ("Rights") to certain
employees. Holders of the Rights were entitled to receive incentive payments
based on the difference between market price of the Company's common shares and
exercise price of the Rights. The exercise price of the Rights was determined
based on the market price of the Company's common shares at the time the Rights
were granted. The Rights vested over three years and had a term of four years.
During 2002, all 202,334 remaining Rights (2001 - 6,666) were exercised. The
related compensation expense has been included in general and administrative
expenses.
NORMAL COURSE ISSUER BID
During the year ended December 31, 2002, the Company acquired 9,200 (2001 -
222,400) of its common shares through a normal course issuer bid program at an
average cost of $6.03 per share (2001 - $3.87 per share). The shares purchased
under the normal course issuer bid were cancelled. In January 2003, the Company
renewed the normal course issuer bid to purchase up to 5.2 million common shares
of the Company during the 12-month period beginning January 7, 2003 and ending
January 5, 2004.
FLOW-THROUGH SHARES
In accordance with the terms of flow-through share offerings entered into by the
Company, and pursuant to certain provisions of the Income Tax Act (Canada), the
Company fulfilled its commitment to renounce, for income tax purposes,
exploration expenditures of $1.6 million in 2001 to the subscribers of the
flow-through shares.
8. NET INCOME PER SHARE
The Company applies the treasury stock method to assess the dilutive effect of
outstanding stock options on net income per share. The number of shares used in
the calculation of diluted net income per share is determined as follows:
-----------------
2002 2001
-----------------
Weighted average number of shares outstanding, basic 52,298 49,503
Dilutive effect of stock options 939 701
-----------------
Weighted average number of shares outstanding, diluted 53,237 50,204
=================
The diluted net income per share discussed above did not include 2.8 million
(2001- 1.3 million) of stock options because the respective exercise prices
exceeded the average market price of the common shares during the year.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. INCOME TAXES
The provision for income taxes has been computed as follows:
----------------------
2002 2001
----------------------
INCOME (LOSS) BEFORE INCOME TAXES $ 92,808 $(237,306)
EXPECTED INCOME TAXES (RECOVERY) AT THE STATUTORY RATE OF 43.9%
(2001 - 44.0%) $ 40,743 $(104,415)
INCREASE (DECREASE) IN TAXES RESULTING FROM:
Crown royalties 21,153 19,870
Resource allowance (26,308) (22,560)
Alberta royalty tax credit (219) (224)
Rate change (138) 183
Other 2,725 (181)
Large Corporation Tax and provincial capital tax 9,716 7,128
----------------------
PROVISION FOR INCOME TAXES $ 47,672 $(100,199)
======================
The components of future income taxes are as follows:
----------------------
AS AT DECEMBER 31,
----------------------
2002 2001
----------------------
Future income tax liabilities:
Capital assets $ 202,429 $ 173,430
Future income tax assets:
Abandonment costs (9,638) (9,038)
Attributed Canadian Royalty Income (4,475) (5,263)
Share issue costs (2,833) (4,398)
Loss carry-forward (323) (7,528)
Other (758) (757)
----------------------
Future income taxes $ 184,402 $ 146,446
======================
10. CASH FLOW INFORMATION
INCREASE (DECREASE) IN NON-CASH WORKING CAPITAL ITEMS
----------------------
2002 2001
----------------------
Current assets $ 38,528 $ (23,440)
Current liabilities 28,229 (43,060)
----------------------
$ 66,757 $ (66,500)
======================
----------------------
2002 2001
----------------------
Changes in non cash working capital related to:
Operating activities $ 1,272 $ 5,682
Investing activities 65,485 (72,182)
----------------------
$ 66,757 $ (66,500)
======================
During the year the Company made the following cash
outlays in respect of interest expense and current
income taxes.
----------------------
2002 2001
----------------------
Interest $ 25,482 $ 22,889
Current income taxes (refund) $ (3,298) $ 15,459
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. FINANCIAL INSTRUMENTS
The Company's financial instruments recognized in the balance sheet consist of
accounts receivable, current liabilities and long-term borrowings. The estimated
fair values of financial instruments have been determined based on the Company's
assessment of available market information and appropriate valuation
methodologies; however, these estimates may not necessarily be indicative of the
amounts that could be realized or settled in a current market transaction.
The fair values of financial instruments other than long-term borrowings
approximate their carrying amounts due to the short-term maturity of these
instruments. At December 31, 2002 and 2001, the reported values of the Company's
senior secured term notes, bank loan and other long-term debt approximate their
fair values. At December 31, 2002, the trading value of the Company's senior
subordinated term notes was 105 percent in relation to par (2001- 95 percent).
12. DERIVATIVE CONTRACTS
The nature of the Company's operations results in exposure to fluctuations in
commodity prices, exchange rates and interest rates. The Company monitors and,
when appropriate, utilizes derivative contracts to manage its exposure to these
risks. The Company is exposed to credit-related losses in the event of
non-performance by counter-parties to these contracts. In 2002, petroleum and
natural gas sales were reduced by $8.3 million (2001 - $9.5 million) due to
derivative contracts.
At December 31, 2002, the Company had derivative contracts for the following:
----------------------------------------------------------
PERIOD VOLUME PRICE INDEX
----------------------------------------------------------
OIL
Price collar Calendar 2003 2,500 bbl/d US$20.00 - $26.05 WTI
Price collar Calendar 2003 5,000 bbl/d US$20.00 - $26.60 WTI
Price collar Calendar 2003 2,500 bbl/d US$20.00 - $27.00 WTI
The fair value of the oil derivative contracts at December 31, 2002 is an
unrecognized liability of $12.3 million.
---------------------------------------------------------------------
UNRECOGNIZED LOSS AT
PERIOD AMOUNT EXCHANGE RATE DECEMBER 31, 2002
---------------------------------------------------------------------
FOREIGN CURRENCY January 1998 to US$315,000 CAD/USD $1.4228 $2,008
SWAP December 2005 per month
13. COMMITMENTS
In October 2002, the Company entered into a long-term crude oil supply contract
with a third party that requires the delivery of 20,000 barrels per day of
Lloydminster Blend crude oil at a price fixed at 71 percent of NYMEX WTI oil
price. The contract is for an initial term of five years commencing January 1,
2003. The volumes contracted under this contract will increase from 9,000
barrels per day in January 2003 to 20,000 barrels per day in October 2003 and
thereafter.
For the period November 1, 2002 to October 31, 2003, the Company has entered
into natural gas sales contracts with third parties for 15,000 GJ per day for
fixed prices averaging $5.35/GJ and 10,000 GJ per day of collar contracts with
prices between $4.20/GJ and $7.22/GJ.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. CORPORATE ACQUISITIONS
Effective May 1, 2001, the Company acquired all of the issued and outstanding
shares of OGY Petroleums Ltd. ("OGY"), a public company involved in the
exploration, development and production of oil and natural gas in Western
Canada. The acquisition has been accounted for by the purchase method of
accounting as follows:
CONSIDERATION
Cash $ 50,683
Transaction costs 3,100
----------
53,783
Issue of 1,169,481 common shares 14,057
----------
$ 67,840
==========
NET ASSETS ACQUIRED
Petroleum and natural gas properties $ 116,607
Future income taxes (36,127)
Future site restoration costs (1,844)
----------
78,636
Working capital deficiency (4,809)
Long-term debt (5,987)
----------
$ 67,840
==========
Effective June 1, 2001, the Company acquired all of the issued and outstanding
shares of Triumph Energy Corporation ("Triumph"), a public company involved in
the exploration, development and production of oil and natural gas in Western
Canada. The acquisition has been accounted for by the purchase method of
accounting as follows:
CONSIDERATION
Cash $ 82,337
Transaction costs 11,306
----------
93,643
Issue of 4,949,245 common shares 54,047
----------
$ 147,690
==========
NET ASSETS ACQUIRED
Petroleum and natural gas properties $ 248,480
Future income taxes (77,751)
Future site restoration costs (213)
----------
170,516
Working capital 7,543
Long-term debt (30,369)
----------
$ 147,690
==========
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. SUBSEQUENT EVENT
On March 3, 2003, the Company signed an agreement to sell certain crude oil and
natural gas assets for total cash consideration of $133.3 million. The sale is
subject to certain conditions and is scheduled to close by the end of March
2003. Upon closing of this transaction, the Company intends to use the proceeds
for debt reduction and general corporate purposes.
16. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the current
years' presentation.
17. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Reconciliation Of Financial Statements To United States Generally Accepted
Accounting Principles
The consolidated financial statements included in the Baytex Energy Ltd.'s 2002
Annual Report have been prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"), which in most respects, conform to
generally accepted accounting principles in the United States ("U.S. GAAP"). The
significant differences in those principles, as they apply to the Company, are
as follows:
(a) Under U.S. GAAP, the carrying value of petroleum and natural gas
properties and related facilities, net of future or deferred income
taxes, is limited to the present value of after tax future net revenue
from proven reserves, discounted at 10 percent, (based on prices and
costs at the balance sheet date) plus the lower of cost and fair value
of unproven properties. Under Canadian GAAP, this "ceiling test" is
calculated without application of a discount factor but interest and
general and administrative expenses are deducted.
As a result of applying the U.S. GAAP ceiling test in prior years, the
Company recorded additional depletion of $106.1 million before income
tax. At December 31, 2001, the application of the full cost ceiling
test under U.S. GAAP resulted in a write-down of capitalized costs of
$234.6 million ($131.4 million after tax). Where the amount of a
ceiling test write-down under Canadian GAAP differs from the amount of
the write-down under U.S. GAAP, the charge for depletion, depreciation,
and amortization will differ in subsequent years.
The calculation of depletion and depreciation under U.S. GAAP will also
differ from the Canadian GAAP calculation, as the calculation is done
with proven reserves as defined by the Securities and Exchange
Commission in the United States.
(b) Under U.S. GAAP, the provision for future site restoration costs is
recorded as a reduction of capital assets.
(c) The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (FAS 123) which establishes financial accounting and
reporting standards for stock-based employee compensation plans as well
as transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. As permitted by the FAS
123, Baytex has elected to follow the intrinsic value method of
accounting for stock-based compensation arrangements, as provided for
in Accounting Principles Board Opinion 25 ("APB 25"). Since all options
were granted with exercise price equal to the market price at the date
of the grant, no compensation cost has been charged to income at the
time of the option grants. Had compensation cost for the Baytex's stock
options been determined based on the fair market value at the grant
dates of the awards consistent with methodology prescribed by FAS 123,
"Accounting for Stock-Based Compensation", Baytex's net income (loss)
and net income (loss) per share for years ended December 31, 2002 and
2001 would have been the pro forma amounts indicated below:
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------
YEARS ENDED DECEMBER 31,
-----------------------
2002 2001
-----------------------
Net Income (loss):
As Reported $22,889 $(124,963)
-----------------------
Deduct: total stock based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects (612) (398)
-----------------------
Pro forma $22,277 $(125,361)
=======================
Net Income (loss) per share--Basic:
As Reported $ 0.44 $ (2.52)
Pro forma $ 0.43 $ (2.53)
Net Income (loss) per share--Diluted:
As Reported $ 0.43 $ (2.52)
Pro forma $ 0.42 $ (2.52)
The weighted average fair market value of options granted in 2002 was
$3.65 per option (2001 - $2.46). The fair value of each option granted
was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
2002 2001
-----------------------
Risk-free interest rate (percent) 4.0 5.0
Volatility in the price of the Company's common shares 57 61
Expected life (years) 4 4
Dividend yield Nil Nil
APB 25 also requires recognition of compensation cost with respect to
changes in intrinsic value for variable employee stock compensation
plans. As a result of the modifications to the terms of employee stock
options, the modified options are subject to variable plan accounting,
which results in an increase of compensation cost of $3.7 million for
the year ended December 31, 2002 (2001 - reduction in compensation cost
of $0.8 million) for U.S. GAAP purposes.
(d) Effective January 1, 2002, the Company retroactively adopted the
Canadian Institute of Chartered Accountants (CICA) amended accounting
standard with respect to accounting for foreign currency translation.
As a result of the amendments, all exchange gains and losses on
long-term monetary items that do not qualify for hedge accounting are
recognized in income. Previously under Canadian GAAP, these exchange
gains and losses were deferred and amortized over the remaining life of
the monetary item. The effect of this change is to make the accounting
for exchange gains and losses on foreign denominated long-term monetary
items consistent under both Canadian GAAP and U.S. GAAP. The U.S. GAAP
reconciliation for the years presented have been retroactively restated
as there is no longer a difference in accounting principles.
(e) The Company adopted the liability method of accounting for income taxes
in 2000 retroactively without restatement. The liability method of
accounting for income taxes is similar to Statement of Financial
Accounting Standards No. 109, which requires the use of the asset and
liability method. The Canadian GAAP liability method requires the
measurement of future income tax liabilities and assets using income
tax rates that reflect enacted income tax rate reductions provided it
is more likely than not that the Company will be eligible for such rate
reductions in the period of reversal. U.S. GAAP allows recording of
such reductions only when claimed.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(f) On January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative instruments
and Hedging Activities" (FAS 133), as modified by Statement No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities". The statement, as amended, establishes accounting and
reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured
at its fair value, and that changes in the fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. This statement requires an entity to establish, at the inception
of a hedge, the method it will use for assessing the effectiveness of
the hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. Those methods must be consistent with
the entity's approach to managing risk. At December 31, 2002, the
Company's financial instruments would be recorded as a liability on the
balance sheet at their fair value of $14.3 million (2001 - an asset on
the balance sheet of $12.9 million). FAS 133 also requires that gain
and losses on financial instruments be included in the statement of
operations when settled. As a result, $12.2 million realized on the
settlement of interest rate swap derivative contracts would be included
as an increase of the net income for December 31, 2002 and the $18.7
million realized on the renegotiation of financial derivative contracts
would be included as a reduction of the net loss for December 31, 2001
for U.S. GAAP.
The Company is exposed to price risk from changing commodity prices.
Management believes it is prudent to minimize the variability in cash
flows on a portion of its future crude oil and natural gas production.
To meet this objective, the Company enters into various types of
commodity derivative instruments to manage fluctuations in cash flows
resulting from changing commodity prices. The Company also uses fixed
price physical delivery sales contracts to accomplish this objective.
The types of instruments utilized by the Company may include futures,
swaps and options. All of the mark-to-market valuations used for the
financial derivative instruments are provided by external sources and
are based on prices that are actively quoted. The Company manages
market and counterparty credit risk through established internal
control procedures, which are reviewed on an ongoing basis.
(g) Under U.S. GAAP, the presentation in current assets of assets held for
sale would not be permitted, as the sale of the properties had not
occurred. Accordingly, this amount is included in long-term assets for
U.S. GAAP at December 31, 2001. The proceeds from the sale of the
properties were deducted from the petroleum and natural gas properties
during the year ended December 31, 2002 when the sales occurred in
accordance with the full cost accounting standards under U.S. GAAP.
(h) The income tax effect of the items noted in (a) through (g) for the
year ended December 31, 2002 is a decrease in income taxes of $15.9
million (2001 - increase of $8.9 million).
(i) Statement of Financial Accounting Standards No. 130 "Comprehensive
Income" requires the reporting of comprehensive income in addition to
net earnings. Comprehensive income includes net income plus other
comprehensive income. Management believes that it has no other
comprehensive income; accordingly comprehensive income is equivalent to
net income.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF OPERATIONS
The application of U.S. GAAP would have the following effect on net earnings as
reported:
YEARS ENDED DECEMBER 31
2002 2001
-----------------------
Net income (loss) for the year - Canadian GAAP $ 45,136 $(137,107)
Adjustments:
Depletion (a) (2,613) (11,041)
Ceiling test write-down (a) -- (266)
Compensation cost (c) (1,873) 787
Deferred revenue (f) (18,694) 18,694
Interest rate swaps (f) 12,181 --
Financial derivative instruments (f) (27,193) 12,893
Income taxes (h) 15,945 (8,923)
-----------------------
Net income (loss) for the year - U.S. GAAP $ 22,889 $(124,963)
=======================
Net income (loss) per share - U.S. GAAP
Basic $ 0.44 $ (2.52)
Diluted $ 0.43 $ (2.52)
Depletion and depreciation expense - U.S. GAAP excluding
ceiling test write-down $ 107,949 $ 142,744
Depletion and depreciation expense - U.S. GAAP per BOE
produced $ 7.54 $ 8.99
CONSOLIDATED BALANCE SHEETS
The application of U.S. GAAP would have the following effect on the Consolidated
Balance Sheets as reported:
DECEMBER 31, 2002
-------------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
-------------------------------------
Assets:
Capital assets (a) $ 932,316 $(120,091) $ 790,275
(b) (21,950)
Liabilities:
Provision for site restoration costs (b) 21,950 (21,950) --
Future income taxes 184,402 (57,398) 127,004
Deferred credits (f) 12,181 (12,181) --
Financial derivative instruments (f) -- 14,300 14,300
Shareholders' equity:
Share capital 398,176 13,942 412,118
Retained earnings (deficit) - see below (38,489) (87,500) (125,989)
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 2002
-------------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
-------------------------------------
Assets:
Current assets (g) $ 91,195 $ (46,895) $ 44,300
Capital assets (a) 867,177 (117,478) 776,053
(b) (20,541)
(g) 46,895
Financial derivative instruments (f) -- 12,893 12,893
Liabilities:
Provision for site restoration costs (b) 20,541 (20,541) --
Future income taxes 146,446 (41,453) 104,993
Deferred credits (f) 18,694 (18,694) --
Shareholders' equity:
Share capital 394,734 13,942 408,676
Retained earnings (deficit) - see below (83,625) (65,252) (148,877)
DECEMBER 31,
-------------------------
2002 2001
-------------------------
Retained earnings (deficit) - Canadian GAAP $ (38,489) $ (83,625)
Adjustments to depletion (128,163) (125,550)
Flow through share differences (13,942) (13,942)
Compensation expense (1,873) --
Financial derivative instruments (14,300) 12,893
Deferred credits 12,181 18,694
Adjustments to future income taxes 58,597 42,653
-------------------------
-------------------------
Retained earning (deficit) - U.S. GAAP $ (125,989) $ (148,877)
=========================
CONSOLIDATED STATEMENTS OF CASH FLOWS
The consolidated statements of cash flows includes, under investing activities,
items not affecting cash, related to the non-cash elements of corporate
acquisitions. This disclosure is provided in order to disclose the aggregate
costs related to such activities and to then deduct the related non-cash amounts
to arrive at the cash amounts. This presentation is not permitted under U.S.
GAAP.
ADDITIONAL U.S. GAAP DISCLOSURE
Under Canadian GAAP, companies are permitted to provide supplementary measures
of earnings and earnings per share in the consolidated financial statements,
provided that these measures are not given the same prominence as reported
earnings and earnings per share. For the purpose of reporting under U.S GAAP,
companies do not disclose supplementary measures of net earnings and earnings
per share.
SIGNIFICANT PETROLEUM AND NATURAL GAS PURCHASERS
For the year ended December 31, 2002, the Company has one significant purchaser
that accounted for 42% (2001 - 40%) of the petroleum and natural gas revenue.
The loss of any purchaser would not be expected to have material adverse effect
the Company's operations.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------
DECEMBER 31,
-------------------
2002 2001
-------------------
Accounts receivable includes the following:
Revenue receivable $ 40,978 $ 28,895
Joint interest receivable 9,391 11,592
Other receivables 2,298 3,813
Allowance for doubtful accounts -- --
-------------------
$ 52,667 $ 44,300
===================
Accounts payable and accrued liabilities includes the following:
Trade payables $ 63,074 $ 51,711
Royalties payable 7,802 3,512
Taxes payable 12,073 (1,271)
Other payables 9,614 10,382
-------------------
$ 92,563 $ 64,334
===================
The aggregate capitalized costs of oil and gas activities and costs incurred in
oil and gas property acquisition, development and exploration activities are as
follows:
CAPITALIZED COSTS
-----------------------
2002 2001
-----------------------
Proved properties $ 1,908,948 $1,731,981
Unproven properties:
Acquisition 76,391 81,835
Exploration 3,907 3,457
Accumulated depreciation and depletion (1,056,930) (950,096)
-----------------------
$ 932,316 $ 867,177
=======================
COSTS INCURRED ON UNPROVED PROPERTIES:
INCLUDES COSTS INCURRED IN
DECEMBER 31, ---------------------------------------
2002 2002 2001 2000 PRIOR YEARS
---------------- ---------------------------------------
Acquisition $76,391 $17,555 $26,738 $22,540 $9,558
Exploration 3,907 451 -- 4,411 (955)
---------------- ---------------------------------------
$80,298 $18,006 $26,738 $26,951 $8,603
================ =======================================
COSTS INCURRED
---------------------
2002 2001
---------------------
Acquisition costs (net of dispositions)
Proven properties (13,588) 224,720
Unproven properties 17,555 26,738
Development costs
Development of proven undeveloped reserves 53,184 54,567
Other 54,466 44,766
Exploration costs 14,851 25,062
---------------------
Total costs incurred $ 126,468 $ 375,853
=====================
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Costs are transferred into the amortization base on an ongoing basis as the
undeveloped properties are evaluated and proved reserves are established or
impairment determined. Pending determination of proved reserves attributable to
the above costs, the Company cannot assess the future impact on the amortization
rate.
U.S. GAAP requires the disclosure of income from operations on statements of
operations. The Company's income from operations is its net income before
interest on long-term debt and income taxes. These amounts are as follows:
-----------------------
YEARS ENDED DECEMBER 31,
-----------------------
2002 2001
-----------------------
Income (loss) from operations 79,073 (187,917)
RECENT DEVELOPMENTS IN U.S. ACCOUNTING
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No.141 " Business Combinations" (FAS 141) and No. 142 "Goodwill and
Other Intangible Assets" (FAS 142). FAS 141 requires the purchase method of
accounting to be used for all business combinations after July 1, 2002. FAS 142
requires that goodwill and intangible assets with an indefinite useful life no
longer be amortized, but instead tested for impairment at least annually. The
Company has no goodwill or other intangible assets that were impacted by the
adoption of FAS 142.
The Financial Accounting Standards Board (FASB) issued Statement No. 143,
"Accounting for Asset Retirement Obligations" (FAS 143) in June 2001. FAS 143
requires liability recognition for retirement obligations associated with
tangible long-lived assets. The initial measurement of the asset retirement
obligation is to be at fair value. The asset retirement cost equal to the fair
value of the retirement obligation is to be capitalized as part of the cost of
the related long-lived asset and amortized to expense over the useful life of
the asset. Enterprises are required to adopt FAS 143 for fiscal years beginning
after June 15, 2002. The Company is currently assessing the impact that adoption
of this standard would have on its consolidated financial position and results
of operations.
In January 2003, the FASB issued Statement No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure re: Amendment of FAS 123". FAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based compensation. In addition, FAS
148 amends the disclosure requirements of FAS 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting and the effect of the method on reported results. This statement has
no material impact on the Company, as there is no current plan to adopt the fair
value method of accounting for stock-based compensation.
18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company issued debt securities on February 12, 2001, which are fully and
unconditionally guaranteed on a joint and several basis by the Company's
wholly-owned subsidiaries, including the Baytex Energy Partnership. On January
1, 2001, the Company and its wholly-owned subsidiaries contributed substantially
all of their producing properties to the partnership. As a result subsequent to
January 1, 2001, the Company became primarily a holding company with no material
operations, sources of income or assets other than its equity interests in its
subsidiaries, including the partnership. In May 2001, the Company acquired OGY
Petroleums Ltd. and Triumph Energy Corporation. These companies became
wholly-owned subsidiaries and partners in the partnership. Both OGY Petroleums
Ltd. and Triumph Energy Corporation contributed substantially all of their
producing properties to the partnership in May 2001. Effective January 1, 2002,
OGY Petroleums Ltd. and Triumph Energy Corporation were amalgamated into the
parent company, Baytex Energy Ltd.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BAYTEX ENERGY LTD.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
PARENT GUARANTOR CONSOLIDATING
COMPANY SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ------------------------------------------------------------------------------------------
REVENUE
Petroleum and natural gas sales $ 464 $ 365,396 $ -- $ 365,860
Royalties -- (58,922) -- (58,922)
-------------------------------------------------
464 306,474 -- 306,938
-------------------------------------------------
EXPENSES
Operating -- 75,228 -- 75,228
General and administrative 6,819 (76) -- 6,743
Interest 25,217 -- -- 25,217
Foreign exchange (gain) (2,691) -- -- (2,691)
Depletion and depreciation 708 91,366 14,760 106,834
Site restoration costs -- 2,799 -- 2,799
-------------------------------------------------
30,053 169,317 14,760 214,130
-------------------------------------------------
INCOME (LOSS) BEFORE THE FOLLOWING (29,589) 137,157 (14,760) 92,808
Equity in net earnings of subsidiaries 128,645 -- (128,645) --
-------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 99,056 137,157 (143,405) 92,808
INCOME TAXES (RECOVERY)
Current 7,676 2,040 -- 9,716
Future 26,450 6,472 5,034 37,956
-------------------------------------------------
34,126 8,512 5,034 47,672
-------------------------------------------------
NET INCOME (LOSS) - CANADIAN GAAP 64,930 128,645 (148,439) 45,136
Adjustments (as outlined in Note 17)
Depletion -- (2,247) (366) (2,613)
Compensation cost (1,873) -- -- (1,873)
Deferred revenue -- (18,694) -- (18,694)
Interest rate swaps 12,181 -- -- 12,181
Financial derivative instruments -- (27,193) -- (27,193)
Income taxes (5,347) 21,131 161 15,945
-------------------------------------------------
NET INCOME (LOSS) - U.S. GAAP $ 69,891 $ 101,642 $ (148,644) $ 22,889
=================================================
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BAYTEX ENERGY LTD.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
PARENT GUARANTOR CONSOLIDATING
COMPANY SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------------------------------------------------
ASSETS
Cash and cash equivalents $ 4,098 $ -- $ -- $ 4,098
Current assets 51,659 1,008 -- 52,667
Inter-company receivable 83,247 149,353 (232,600) --
Investment in subsidiaries and partnership
Deferred charges 911,878 153,512 (1,065,390) --
Petroleum and natural gas properties 8,679 -- -- 8,679
16,297 800,912 115,107 932,316
------------------------------------------------------
$ 1,075,858 $ 1,104,785 $(1,182,883) $ 997,760
=======================================================
LIABILITIES
Accounts payable and accrued liabilities $ 78,876 $ 13,687 $ -- $ 92,563
Inter-company payable 149,353 83,247 (232,600) --
Long-term debt 326,977 -- -- 326,977
Deferred credits 12,181 -- -- 12,181
Provision for site restoration costs -- 21,950 -- 21,950
Future income taxes 91,550 16,049 76,803 184,402
------------------------------------------------------
658,937 134,933 (155,797) 638,073
------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 398,176 934,417 (934,417) 398,176
Retained earnings (deficit) 18,745 35,435 (92,669) (38,489)
------------------------------------------------------
416,921 969,852 (1,027,086) 359,687
------------------------------------------------------
$1,075,858 $ 1,104,785 $(1,182,883) $ 997,760
======================================================
The application of U.S. GAAP (outlined in Note 17) would have the following
effect on the condensed consolidating balance sheet at December 31, 2002:
PARENT COMPANY
----------------------------------
DECEMBER 31, 2002
----------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
----------------------------------
Liabilities:
Deferred credits 12,181 (12,181) --
Future income taxes 91,550 (18,816) 72,734
Shareholders' equity:
Share capital 398,176 13,942 412,118
Retained earnings - see below 18,745 42,844 61,589
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
--------------
2002
--------------
Retained earnings under Canadian GAAP $ 18,745
Flow through share differences (13,942)
Compensation expense (1,873)
Deferred credits 12,181
Adjustments to future income taxes 46,478
--------------
Retained earnings under U.S. GAAP $ 61,589
==============
GUARANTOR SUBSIDIARIES
----------------------------------
DECEMBER 31, 2002
----------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
----------------------------------
Assets:
Capital assets 800,912 (117,350) 661,612
(21,950)
Liabilities:
Provision for site restoration costs 21,950 (21,950) --
Future income taxes 16,049 (23,123) (7,074)
Financial derivative instruments -- 14,300 14,300
Shareholders' equity:
Retained earnings (deficit) - see below 35,435 (128,808) (93,373)
DECEMBER 31,
-------------
2002
-------------
Retained earnings under Canadian GAAP $ 35,435
Adjustments to depletion (125,422)
Financial derivative instruments (14,300)
Adjustments to income taxes 10,914
-------------
Retained earning (deficit) under U.S. GAAP $ (93,373)
=============
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED
----------------------------------
GUARANTOR SUBSIDIARIES
----------------------------------
DECEMBER 31, 2002
----------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
----------------------------------
Assets:
Capital assets 932,316 (120,091) 790,275
(21,950)
Liabilities:
Provision for site restoration costs 21,950 (21,950) --
Future income taxes 184,402 (57,398) 127,004
Deferred credits 12,181 (12,181) --
Financial derivative instruments -- 14,300 14,300
Shareholders' equity:
Share capital 398,176 13,942 412,118
Retained earnings (deficit) - see below (38,489) (87,500) (125,989)
DECEMBER 31,
------------
2002
------------
Retained earnings (deficit) - Canadian GAAP $ (38,489)
Adjustments to depletion (128,163)
Flow through share differences (13,942)
Compensation expense (1,873)
Financial derivative instruments (14,300)
Deferred credits 12,181
Adjustments to future income taxes 58,597
------------
------------
Retained earning (deficit) - U.S. GAAP $(125,989)
============
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BAYTEX ENERGY LTD.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2002
PARENT GUARANTOR CONSOLIDATING
COMPANY SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------------------------------------------
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net income (loss) $ 64,930 $ 128,645 $(148,439) $ 45,136
Items not affecting cash:
Site restoration costs -- 2,799 -- 2,799
Amortization of deferred charges 1,052 -- -- 1,052
Foreign exchange (gain) (2,691) -- -- (2,691)
Depletion and depreciation 708 91,366 14,760 106,834
Future income taxes 26,450 6,472 5,034 37,956
------------------------------------------------
Cash flow from operations 90,449 229,282 (128,645) 191,086
Equity in net earnings of subsidiaries (128,645) -- 128,645 --
Changes in non-cash working capital 15,050 (13,778) -- 1,272
Increase in deferred charges (1,057) -- -- (1,057)
Deferred credits -- (18,694) -- (18,694)
------------------------------------------------
(24,203) 196,810 -- 172,607
FINANCING
Decrease in bank loan and other debt (76,254) -- -- (76,254)
Increase in deferred credits 12,181 -- -- 12,181
(Increase) decrease in inter-company receivable 54,490 (143,422) 88,932 --
Increase (decrease) in inter-company payable 34,442 54,490 (88,932) --
Repurchase of common shares (55) -- -- (55)
Increase in common shares 3,497 -- -- 3,497
------------------------------------------------
28,301 (88,932) -- (60,631)
INVESTING
Petroleum and natural gas property expenditures
Disposal of petroleum and natural gas properties -- (182,048) -- (182,048)
Properties held for sale -- 55,580 -- 55,580
Change in non-cash working capital -- (46,895) -- (46,895)
-- 65,485 -- 65,485
------------------------------------------------
-- (107,878) -- (107,878)
CHANGE IN CASH DURING THE YEAR 4,098 -- -- 4,098
CASH POSITION, BEGINNING OF YEAR -- -- --
------------------------------------------------
CASH POSITION, END OF YEAR $ 4,098 $ -- $ -- $ 4,098
================================================
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BAYTEX ENERGY LTD.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
PARENT GUARANTOR CONSOLIDATING
COMPANY SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------------------------------------------
REVENUE
Petroleum and natural gas sales $ 6,926 $ 322,774 $ -- $ 329,700
Royalties (1,321) (56,484) -- (57,805)
------------------------------------------------
5,605 266,290 -- 271,895
------------------------------------------------
EXPENSES
Operating 2,173 81,266 -- 83,439
General and administrative 5,220 42 -- 5,262
Foreign exchange 16,262 -- -- 16,262
Interest 32,942 -- -- 32,942
Depletion and depreciation 21,872 267,960 77,552 367,384
Site restoration costs 67 3,845 -- 3,912
------------------------------------------------
78,536 353,113 77,552 509,201
------------------------------------------------
INCOME (LOSS) BEFORE THE FOLLOWING (72,931) (86,823) (77,552) (237,306)
Equity in net earnings (loss) of subsidiaries (81,795) -- 81,795 --
------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (154,726) (86,823) 4,243 (237,306)
INCOME TAXES (RECOVERY)
Current 7,128 -- -- 7,128
Future (80,676) (5,028) (21,623) (107,327)
------------------------------------------------
(73,548) (5,028) (21,623) (100,199)
------------------------------------------------
NET INCOME (LOSS) - CANADIAN GAAP (81,178) (81,795) 25,866 (137,107)
Adjustments (as outlined in note 17)
Depletion (552) (8,170) (2,319) (11,041)
Ceiling test write-down (13) (197) (56) (266)
Compensation cost 787 -- -- 787
Deferred revenue -- 18,694 -- 18,694
Financial derivative instruments -- 12,893 -- 12,893
Income taxes 249 (10,217) 1,045 (8,923)
------------------------------------------------
NET INCOME (LOSS) - U.S. GAAP $ (80,707) $ (68,792) $ 24,536 $(124,963)
================================================
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BAYTEX ENERGY LTD.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
PARENT GUARANTOR CONSOLIDATING
COMPANY SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------------------------------------------------
ASSETS
Cash and cash equivalents $ -- $ -- $ -- $ --
Current assets 38,011 53,184 -- 91,195
Inter-company receivable 137,737 149,672 (287,409) --
Investment in subsidiaries and partnership
Deferred financing costs 692,009 315,511 (1,007,520) --
Petroleum and natural gas properties 8,674 -- -- 8,674
79,194 481,264 306,719 867,177
------------------------------------------------------
$ 955,625 $ 999,631 $ (988,210) $ 967,046
======================================================
LIABILITIES
Accounts payable and accrued liabilities
Inter-company payable $ 52,178 $ 14,156 $ -- $ 66,334
Long-term debt 149,672 137,737 (287,409) --
Deferred credits 403,922 -- -- 403,922
Provision for site restoration costs -- 18,694 -- 18,694
Future income taxes 67 20,474 -- 20,541
(22,127) 21,381 147,192 146,446
------------------------------------------------------
583,712 212,442 (140,217) 655,937
------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 394,734 863,315 (863,315) 394,734
Retained earnings (deficit) (22,821) (76,126) 15,322 (83,625)
------------------------------------------------------
371,913 787,189 (847,993) 311,109
------------------------------------------------------
$ 955,625 $ 999,631 $ (988,210) $ 967,046
======================================================
The application of U.S. GAAP (outlined in Note 17) would have the following
effect on the condensed consolidating balance sheet at December 31, 2001:
PARENT COMPANY
----------------------------------
DECEMBER 31, 2001
----------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
----------------------------------
Assets:
Capital assets 79,194 (565) 78,562
(67)
Liabilities:
Provision for site restoration costs 67 (67) --
Future income taxes (22,127) 13,469 (8,658)
Shareholders' equity:
Share capital 394,734 13,942 408,676
Retained earnings (deficit) - see below (22,821) 37,318 14,497
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
-------------
2001
-------------
Retained earnings (deficit) under Canadian GAAP $ (22,821)
Adjustments to depletion (565)
Flow through share differences (13,942)
Adjustments to future income taxes 51,825
------------
Retained earning (deficit) under U.S. GAAP $ 14,497
============
GUARANTOR SUBSIDIARIES
---------------------------------------
DECEMBER 31, 2001
---------------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
---------------------------------------
Assets:
Current assets 53,184 (46,895) 6,289
Capital assets 481,264 (114,538) 393,147
(20,474)
46,895
Financial derivative instruments -- 12,893 12,893
Liabilities:
Provision for site restoration costs 20,474 (20,474) --
Future income taxes 21,381 (1,992) 19,389
Deferred credits 18,694 (18,694) --
Shareholders' equity:
Retained earnings (deficit) - see below (76,126) (101,240) (177,366)
DECEMBER 31,
---------------
2001
---------------
Retained earnings (deficit) under Canadian GAAP $ (76,126)
Adjustments to depletion (122,610)
Financial derivative instruments 12,893
Deferred credits 18,694
Adjustments to income taxes (10,217)
---------------
Retained earning (deficit) under U.S. GAAP $(177,366)
===============
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED
-----------------------------------------
DECEMBER 31, 2001
-----------------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
-----------------------------------------
Assets:
Current assets $ 91,195 $ (46,895) $ 44,300
Capital assets 867,177 (117,478) 776,053
(20,541)
46,895
Financial derivative instruments -- 12,893 12,893
Liabilities:
Provision for site restoration costs 20,541 (20,541) --
Future income taxes 146,446 (41,453) 104,993
Deferred credits 18,694 (18,694) --
Shareholders' equity:
Share capital 394,734 13,942 408,676
Retained earnings (deficit) - see below (83,625) (65,252) (148,877)
DECEMBER 31,
-------------
2001
-------------
Retained earnings (deficit) - Canadian GAAP $ (83,625)
Adjustments to depletion (125,550)
Flow through share differences (13,942)
Financial derivative instruments 12,893
Deferred credits 18,694
Adjustments to future income taxes 42,653
-------------
Retained earning (deficit) - U.S. GAAP $ (148,877)
=============
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BAYTEX ENERGY LTD.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
PARENT GUARANTOR CONSOLIDATING
COMPANY SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------------------------------------------------
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net income (loss) $ (81,178) $ (81,795) $ 25,866 (137,107)
Items not affecting cash:
Site restoration costs 67 3,845 -- 3,912
Amortization of deferred charges 946 -- -- 946
Foreign exchange loss 16,262 -- -- 16,262
Depletion and depreciation 21,872 267,960 77,552 367,384
Future income taxes (recovery) (80,676) (5,028) (21,623) (107,327)
-------------------------------------------------
Cash flow from operations (122,707) 184,982 81,795 144,070
Equity in net earnings of subsidiaries 81,795 -- (81,795) --
Changes in non-cash working capital (3,346) 9,028 -- 5,682
Increase in deferred credits -- 18,694 -- 18,694
-------------------------------------------------
(44,258) 212,704 -- 168,446
FINANCING
Issue of senior subordinated term notes 227,895 -- -- 227,895
Increase (decrease) in bank loan (90,304) (2,702) 4,532 (88,474)
Increase in deferred charges (9,037) -- -- (9,037)
(Increase) decrease in inter-company receivable (57,613) (178,463) 236,076 --
Increase (decrease) in inter-company payable 178,463 57,613 (236,076) --
Repurchase of common shares (860) -- -- (860)
Increase in common shares 1,444 -- -- 1,444
-------------------------------------------------
249,988 (123,552) 4,532 130,968
INVESTING
Corporate acquisitions (249,152) -- -- (249,152)
Items not involving cash:
Shares issued on acquisition 68,104 -- -- 68,104
Assumption of long-term debt 36,356 -- -- 36,356
Assumption of working capital (2,734) -- -- (2,734)
-------------------------------------------------
(147,426) -- -- (147,426)
Petroleum and natural gas property expenditures
Disposal of petroleum and natural gas properties (59,696) (129,587) -- (189,283)
Properties held for sale 1,392 61,190 -- 62,582
Change in non-cash working capital -- 46,895 -- 46,895
-- (72,182) -- (72,182)
-------------------------------------------------
(205,730) (93,684) -- (299,414)
CHANGE IN CASH DURING THE YEAR -- (4,532) 4,532 --
CASH POSITION, BEGINNING OF YEAR -- 4,532 (4,532) --
-------------------------------------------------
CASH POSITION, END OF YEAR $ -- $ -- $ -- $ --
=================================================
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The net proved oil and natural gas reserve estimates as of December 31, 2002 and
2001 set forth below were prepared in accordance with guidelines established by
the Securities and Exchange Commission and accordingly were based on existing
economic and operating conditions. Oil and natural gas prices in effect as of
the respective year-ends were used without any escalation except in those
instances where the sale is covered by contract, in which case the applicable
contract prices are used. Operating costs, royalties, and future development
costs were based on current costs with no escalation.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact. Moreover, the present value should
not be construed as the current market value of the Company's oil and natural
gas reserves of the costs that would be incurred to obtain equivalent reserves.
All of the reserves are located in Canada.
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
2002 2001
----------------------------- -----------------------------
Oil (Mbbls) N. Gas (Mmcf) Oil (Mbbls) N. Gas (Mmcf)
------------- --------------- ------------- ---------------
Balance beginning of year 86,541 105,384 60,681 77,953
Revisions of previous estimates 4,052 8,287 21,643 (12,572)
Extensions, discoveries and other additions 7,405 42,587 9,888 15,531
Acquisitions of minerals in place 5,973 1,370 10,997 48,757
Dispositions of minerals in place (5,232) (15,896) (6,606) (4,896)
Production (8,484) (21,310) (10,062) (19,389)
------------- --------------- ------------- ---------------
Balance at end of year 90,255 120,449 86,541 105,384
============= =============== ============= ===============
Proved developed reserves
Balance at beginning of year 58,125 96,633 45,019 69,773
Balance at end of year 60,756 103,617 58,125 96,633
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND NATURAL GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Natural Gas Reserves ("Standardized Measure") does
not purport to present the fair market value of the Company's oil and natural
gas properties. An estimate of such value should consider, among other factors,
anticipated future prices of oil and natural gas, the probability of recoveries
in excess of existing proved reserves and acreage prospects, and perhaps
different discount rates. It should be noted that estimated of reserve
quantities, especially from new discoveries, are inherently imprecise and
subject to substantial revisions.
Under the Standardized Measure, future cash inflows were estimated by applying
year-end prices, adjusted for contracts currently in place to deliver
production, to the estimated future production of year-end proved reserves.
Future cash inflows were reduced by estimated future production and development
costs based on year-end costs to determine pre-tax cash inflows. Future taxes
were computed by applying the statutory tax rate to the excess of pre-tax cash
inflows over the Company's tax basis in the associated proved oil and natural
gas properties. Tax credits and net operating loss carry forwards were also
considered in the future income tax calculation. Future net cash inflows after
income taxes were discounted using a 10 percent annual discount rate to arrive
at the Standardized Measure.
BAYTEX ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(ALL TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------
DECEMBER 31,
-----------------------------
2002 2001
-----------------------------
(In thousands)
Future cash inflows $3,429,455 $1,712,196
Future production costs (886,006) (742,382)
Future development costs (137,922) (117,008)
-----------------------------
Future net cash flows 2,405,527 852,806
Income taxes (853,287) (144,854)
-----------------------------
Total undiscounted future net cash flows 1,552,240 707,952
10% annual discount for estimating timing of cash inflows (586,011) (225,747)
-----------------------------
Standardized measure of discounted future net cash $ 966,229 $ 482,205
=============================
- ----------------------
(1) The Company estimated that it will incur $51 million in 2003, $30 million
in 2004 and $48 million in 2005 to develop proven undeveloped reserves.
The following table sets forth an analysis of changes in the Standardized
Measure of Discounted Future Net Cash Flows from proved oil and natural gas
reserves:
---------------------------
DECEMBER 31,
---------------------------
2002 2001
---------------------------
(In thousands)
Standardized measure, beginning of year $ 482,205 $ 547,994
Sales of production, net of production costs (231,710) (188,456)
Net change in sales prices, net of production costs 757,445 (220,171)
Extensions, discoveries and additions 198,245 76,775
Changes in estimated future development costs (25,534) (8,403)
Development costs incurred during the period which reduced future
development costs 53,184 54,567
Revisions in quantity estimates 74,268 120,287
Accretion of discount 66,945 78,977
Purchase of reserves 84,768 117,675
Sales of reserves (43,568) (74,015)
Net change in income tax (412,674) 90,695
Changes in production rates (timing) and other (37,345) (113,719)
----------------------------
Standardized measure, end of year $ 966,229 $ 482,205
============================