EXHIBIT 99.2
------------
SECOND INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2003
MESSAGE TO SHAREHOLDERS
Western Oil Sands Inc. ("Western") is pleased to present its second quarter 2003
results and to provide an update on successfully achieving commercial operations
and the ramp up to full production rates for the Athabasca Oil Sands Project
(the "Project"). Construction of the Project was completed in the fourth quarter
of 2002, testing and commissioning occurred in the first quarter and through the
first two months of the second quarter, and on June 1, 2003 Western moved into
commercial operations.
Starting and ramping up production at the Muskeg River Mine and
extraction plant (the "Mine"), and the Scotford Upgrader (the "Upgrader") was
the primary focus of the Project in the second quarter of 2003. Production of
bitumen at the Mine resumed April 4, 2003 when repairs to Train 1 of the froth
treatment plant were completed, after a fire at the Mine on January 6, 2003 had
disrupted this process. On April 19, 2003 the Project achieved fully integrated
operations when the Scotford Upgrader began processing bitumen from the Mine to
manufacture synthetic crude oil products. Revenues from production during the
months of April and May were capitalized to offset capitalized pre-commercial
operating costs. For the month of June 2003, the first month of commercial
operations, the production at the Mine averaged 85,000 barrels of bitumen
production per day (17,000 for Western's share). To date in July, bitumen
production has averaged in excess of 120,000 barrels per day (24,000 for
Western's share), with production recently achieving design capacity of 155,000
barrels per day of bitumen for short periods. 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 synthetic crude oil
production of approximately 190,000 barrels per day (38,000 barrels per day net
to Western) at the Upgrader, is expected to be achieved on a continuous basis by
the end of the third quarter of 2003.
Western continues to focus on collecting on its cost overrun and
project delay insurance claims, and the Project's construction insurance claim.
The costs of repairs for the fire and freeze damage incurred to date are $166
million ($33.2 million net to Western). Western has extensive insurance coverage
in place and is seeking to recover these costs from insurers. To date two claims
totaling $90 million ($18 million for Western's share) have been presented to
insurers for payment, with further submissions to follow. In addition, Shell has
advised insurers that it will be submitting a claim for $500 million ($100
million for Western's share) to cover loss of profits due to the delay from the
January fire. In respect of Western's own cost overrun and project delay
insurance, claims for a total of $500 million have been submitted against the
$200 million policy limit. This brings Western's share of filed insurance claims
and pending claims to a total of approximately $335 million.
The objective of the third quarter of 2003 is to complete the ramp up
of production to design capacity, to focus on reducing operating costs and to
begin debottlenecking activities aimed at increasing the overall capacity of the
Project facilities.
On behalf of the Board of Directors Guy J. Turcotte
President and Chief Executive
Officer
July 24, 2003
MANAGEMENT'S DISCUSSION & ANALYSIS
THE FOLLOWING DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD
BE READ IN CONJUNCTION WITH THE INTERIM UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2003 AND 2002 AND THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 2002 INCLUDED IN THE 2002
ANNUAL REPORT. IT OFFERS MANAGEMENT'S ANALYSIS OF OUR FINANCIAL AND OPERATING
PERFORMANCE BASED ON INFORMATION CURRENTLY AVAILABLE. ACTUAL RESULTS MAY VARY
FROM ESTIMATES AND THE VARIANCES MAY BE SIGNIFICANT.
OVERVIEW
Western Oil Sands Inc. ("Western") is a Canadian corporation which holds a 20
per cent undivided ownership interest in a multibillion dollar Joint Venture to
exploit the recoverable bitumen resources found in certain oil sands deposits in
the Athabasca region of Alberta and to pursue other oil sands opportunities.
Western's main role is to provide construction and operating expertise for the
Mine. Shell Canada Limited and Chevron Canada Limited hold the remaining 60 per
cent and 20 per cent undivided ownership interest in the Joint Venture,
respectively. The Project involves certain other projects owned and operated by
third parties, such as the Corridor Pipeline system and the ATCO Cogeneration
Facilities.
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HIGHLIGHTS THREE MONTHS
ENDED
JUNE 30, 2003
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OPERATING DATA (BBLS/D)
Bitumen Production 16,957
Synthetic Crude Sales 18,612
FINANCIAL DATA ( $ 000'S)
Revenues 24,930
Average Realized Price ($/bbl) 34.95
Net Earnings Attributable to Common Shareholders 1,362
Earnings Per Share ($/share) 0.03
Cash Flow From Operations (5,009)
Net Capital Expenditures 25,321
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THE INFORMATION PRESENTED ABOVE REPRESENTS WESTERN'S OPERATIONS FROM JUNE 1, THE
DATE COMMERCIAL OPERATIONS COMMENCED.
FINANCIAL RESULTS
Western began reporting operations on a commercial basis on June 1, 2003, and
consequently is reporting operating revenues and expenses for the final month of
the second quarter of 2003. During the second quarter, Western earned net
earnings attributable to common shareholders of $1.4 million ($0.03 per share)
compared to a loss of $24.7 million ($0.51 per share) for the second quarter of
2002. Western's net earnings attributable to common shareholders includes $7.0
million of unrealized gains on its US denominated Senior Secured Notes and a
future income tax recovery of $3.4 million. Cash outflow from operations for the
second quarter of 2003 was $5.0 million, including interest charges of $5.5
million, compared to a cash outflow of $1.9 million in the second quarter of
2002.
OPERATIONS
Revenue of $24.9 million was earned during the second quarter of 2003 (2002 -
$nil), comprised solely of sales of synthetic crude oil in June. Any revenue
earned during start-up prior to June was capitalized as part of the costs of
construction consistent with Western's policy. During June, Western's share of
bitumen production averaged 17,000 barrels per day. After upgrading with
purchased feedstocks, this resulted in sales of synthetic crude products for
Western averaging 18,612 barrels per day in June, at an average realized price
of $34.95 per barrel. To date in July, bitumen
production has averaged in excess of 120,000 barrels per day (24,000 for
Western's share), with production recently achieving design capacity of 155,000
barrels per day of bitumen for short periods. The Project will continue to ramp
up towards sustained production at the design capacity of 155,000 barrels per
day (31,000 for Western's share) of bitumen.
Western's share of operating expenses for the Project totaled $12.9
million (2002 - $nil) and Western's costs of purchased feedstocks and
transportation related to generating revenues was $8.8 million (2002 - $nil).
Again both these items represent June's activity only, with previous costs being
capitalized during the start-up phase.
Royalties commenced with the start of production and Western expensed
$0.1 million in royalties in the second quarter. Royalties are calculated at one
percent of the gross revenue from bitumen produced (based on its value prior to
upgrading) until recovery of all the capital costs associated with the Mine,
together with a return on capital equal to the Government of Canada long-term
bond rate. Thereafter, the royalties shall be the greater of one percent of
gross revenue on the bitumen produced and twenty-five percent of net revenue on
the bitumen produced.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $1.5 million in the second
quarter of 2002 to $1.9 million in the second quarter of 2003 due to the
addition of marketing and administrative personnel as Western entered the
operating phase.
INTEREST
Interest expense reported in the second quarter of 2003 totaled $5.5 million.
This represents the expense for June only, as prior to the commencement of
commercial operations all interest was capitalized as part of the cost of
construction.
DEPRECIATION, DEPLETION AND AMORTIZATION
During the second quarter of 2003, Western incurred $3.3 million of
depreciation, depletion and amortization compared to $0.04 million for the same
quarter in 2002. This increase reflects the commencement in June of both the
depletion on a unit of production basis of Western's share of the Project
capital costs ($1.9 million) and the amortization of Western's previously
deferred financing charges on a straight-line basis over the remaining life of
the debt facilities ($1.3 million).
INCOME TAXES AND CHARGE FOR CONVERTIBLE NOTES
Western reported a future income tax recovery of $3.4 million for the quarter,
offset by Large Corporation Tax of $0.8 million (2002 - $0.4 million). There was
a charge for the convertible notes of $0.7 million in the quarter (2002 - $nil),
representing the accretion of the liability component of the convertible notes.
WORKING CAPITAL
As the Project started and ramped up to commercial production in the second
quarter of 2003, Western invested significant amounts in working capital.
Inventories have been accumulated for bitumen, purchased feedstocks, synthetic
crude products and parts and supplies. In the second quarter of 2003, the
Project produced and began storing bitumen inventory at the Mine and Upgrader.
The Project also continued to purchase and hold feedstocks, as well as parts and
supplies. At June 30, 2003 Western had invested $12.6 million in total
inventory. Trade accounts receivable increased to $35.5 million from $6.6
million reflecting mainly the addition of trade accounts receivables from
Western's synthetic crude sales.
LIQUIDITY AND CAPITAL RESOURCES
In the second quarter of 2003, Western continued to draw on its $100 million
Senior Credit Facility and its Revolving Credit Facility. Funds drawn on these
two facilities were used for working capital during the quarter and to fund
capitalized operating expenses incurred during start-up prior to June. At June
30, 2003, Western had drawn a total of $171 million on these two facilities.
To date two interim insurance claims for a total of $90 million ($18
million net to Western) have been submitted to recover costs related to the
January 6, 2003 fire, and subsequent freeze damage, at the Mine. While Western
expects significant recoveries under these insurance policies, no provision was
made in the financial statements at June 30, 2003 for insurance proceeds yet to
be received. Upon receipt of proceeds such amounts are and will be credited
against capital assets. As a result of delays in receiving proceeds on these
claims, Western obtained additional financing in the form of a $35 million
increase in the limit of the Revolving Credit Facility to $110 million.
On July 20, 2003 Western met the completion test pursuant to the terms
of its US$450 million Senior Secured Notes by achieving 75% of design production
capacity for a period of fifteen consecutive days. As a result Western is able
to increase the capacity of its credit facilities by a further $240 million, if
required.
CAPITAL EXPENDITURES
Western's capital expenditures in the second quarter of 2003 totaled $29.3
million. Capital expenditures were comprised of $1.7 million for Western's share
of construction costs for the Project, $7.6 million in respect of capital
repairs for the January fire, $11.3 million of capitalized pre-operating costs,
$7.1 million of direct capitalized finance costs, $0.6 million of diluent
purchases and $1.0 million of corporate assets.
Western's share of the Project costs since inception total $1,193.9
million, including the fire repairs and capitalized pre-operating costs. The
costs of repairs for the fire and subsequent freeze damage to June 30, 2003 are
$166 million ($33.2 million net to Western). Capitalized pre-operating costs of
$53.8 million relate to the commissioning and testing costs for the Project as
it ramped up to commercial operations, which have been capitalized during the
pre-commercial operations period.
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 April 1, 2003 and May 30, 2003,
Western capitalized an unrealized foreign exchange gain of $44.3 million during
the second quarter of 2003. At June 30, 2003, a cumulative unrealized foreign
exchange gain of $92.0 million has been capitalized as finance costs during the
pre-commercial operations period.
The following table provides a breakdown of Western's share of capital
expenditures for the three and six months ended June 30, 2003 and since the
inception of the Project:
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THREE MONTHS SIX MONTHS
ENDED ENDED Inception to Inception to
($ millions) JUNE 30, 2003 JUNE 30, 2003 December 31, 2002 June 30, 2003
- ------------------------------------------------------------------------------------------------------
Expenditures
Muskeg River Mine * 29.6 86.7 501.7 588.4
Scotford Upgrader (12.4) 26.4 579.1 605.5
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Project Costs 17.2 113.1 1,080.8 1,193.9
Capitalized finance costs 7.1 22.9 68.9 91.8
Entry fee -- -- 35.0 35.0
Shell interest -- -- 2.7 2.7
Corporate assets 1.0 1.4 12.5 13.9
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Cash Expenditures 25.3 137.4 1,199.9 1,337.3
Non-cash Capitalized costs
Shell fees and interest -- -- 53.7 53.7
Obligations under capital lease 1.4 2.9 50.8 53.7
Capitalized finance costs (44.3) (94.0) 2.0 (92.0)
Corporate assets -- -- 1.1 1.1
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Total (17.6) 46.3 1,307.5 1,353.8
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* Includes net $29.2 million in respect to capital repairs for the fire
damage, after consideration of the $4 million in insurance proceeds.
BUSINESS RISKS
Western is subject to a number of business risks that are typical given the
nature of Western's operations. These risks are described in Western's previous
public disclosures, including the 2002 Annual Report, which are available on the
Company's website.
OUTLOOK
With production at the Project averaging in excess of 120,000 barrels per day
(24,000 for Western's share) in July and recently achieving design capacity of
155,000 barrels per day (31,000 for Western's share) for short periods, the
objective during the third quarter is to complete the ramp up of production to
continuously produce at the design capacity. The Project will also focus on
reducing operating costs and begin debottlenecking activities to increase the
overall production and processing capacity of the Project facilities at the Mine
and Upgrader.
THIS QUARTERLY REPORT CONTAINS "FORWARD-LOOKING STATEMENTS" BASED UPON CURRENT
EXPECTATIONS, ESTIMATES AND PROJECTIONS OF FUTURE PRODUCTION, PROJECT START-UPS
AND FUTURE CAPITAL SPENDING, THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN
SUCH FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE
NOT LIMITED TO, CHANGES IN; MARKET CONDITIONS, LAW OR GOVERNMENT POLICY,
OPERATING CONDITIONS AND COSTS, PROJECT SCHEDULES, OPERATING PERFORMANCE, DEMAND
FOR OIL, GAS AND RELATED PRODUCTS, PRICE AND EXCHANGE RATE FLUCTUATIONS,
COMMERCIAL NEGOTIATIONS OR OTHER TECHNICAL AND ECONOMIC FACTORS. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
REFLECT MANAGEMENT'S ANALYSIS AS AT THE DATE HEREOF.
WESTERN OIL SANDS INC.
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30 As at December 31
($ thousands) 2003 2002
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(UNAUDITED)
ASSETS
Current Assets
Cash $ 2,525 $ 14,428
Accounts Receivable 35,481 6,624
Inventory (note 1) 12,582 4,175
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50,588 25,227
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Capital Assets (note 2) 1,351,342 1,306,989
Deferred Charges 26,413 27,422
Future Income Taxes (note 6) 5,584 --
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1,383,339 1,334,411
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$ 1,433,927 $ 1,359,638
================================================================================
LIABILITIES
Current Liabilities
Accounts Payable and Accrued Liabilities $ 58,897 $ 40,953
Convertible Notes 1,538 4,055
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60,435 45,008
Long-term Liabilities
Long-term Debt (note 3) 780,885 775,820
Obligations Under Capital Lease 53,651 50,859
Future Income Taxes (note 6) -- 454
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834,536 827,133
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894,971 872,141
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SHAREHOLDERS' EQUITY
Share Capital (note 4) 476,215 426,275
Convertible Notes 86,462 83,945
Deficit (23,721) (22,723)
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538,956 487,497
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$ 1,433,927 $ 1,359,638
================================================================================
See accompanying Notes to the Consolidated Financial Statements
WESTERN OIL SANDS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(UNAUDITED) 2003 2002 2003 2002
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($ thousands, except per share amounts)
REVENUES $ 24,930 $ -- $ 24,930 $ --
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EXPENSES:
Operating Expenses 12,881 -- 12,881 --
Purchased Feedstocks and Transportation 8,775 -- 8,775 --
Royalties 138 -- 138 --
General and Administrative 1,862 1,456 3,301 2,741
Interest 5,533 -- 5,533 --
Depreciation, Depletion and Amortization 3,301 43 3,357 86
Write-off of Deferred Financing Costs -- 22,759 -- 22,759
Foreign Exchange Gain (6,993) -- (6,993) --
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25,497 24,258 26,992 25,586
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LOSS BEFORE INCOME TAXES (567) (24,258) (2,062) (25,586)
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Provision for Income Taxes (note 6):
Current Income Taxes 768 423 1,536 850
Future Income Taxes (3,417) -- (4,069) --
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(2,649) 423 (2,533) 850
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NET EARNINGS (LOSS) 2,082 (24,681) 471 (26,436)
Charge for Convertible Notes 720 -- 1,469 --
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Net Earnings (Loss) Attributable to Common
Shareholders 1,362 (24,681) (998) (26,436)
Deficit at Beginning of Period (25,083) (14,192) (22,723) (12,437)
- ----------------------------------------------------------------------------------------------
DEFICIT AT END OF PERIOD $(23,721) $(38,873) $(23,721) $(38,873)
==============================================================================================
NET EARNINGS (LOSS) PER SHARE (NOTE 5):
Basic and Diluted $ 0.03 $ (0.51) $ (0.02) $ (0.55)
==============================================================================================
See accompanying Notes to the Consolidated Financial Statements
WESTERN OIL SANDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30,
(UNAUDITED) 2003 2002 2003 2002
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($ thousands)
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net Earnings (Loss) $ 2,082 $ (24,681) $ 471 $ (26,436)
Non-cash items:
Depreciation, Depletion and Amortization 3,301 43 3,357 86
Write-off of Deferred Charges -- 22,759 -- 22,759
Foreign Exchange Gain (6,975) -- (6,975) --
Future Income Tax Recovery (3,417) -- (4,069) --
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CASH FROM OPERATIONS (5,009) (1,879) (7,216) (3,591)
Increase in Non-Cash Working Capital (note 10) 12,931 -- 12,325 --
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7,922 (1,879) 5,109 (3,591)
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FINANCING ACTIVITIES
Issue of Share Capital 413 298 51,210 1,368
Share Issue Expenses (4) -- (2,191) --
Issue of Long-term Debt 75,000 264,919 106,000 403,933
Deferred Charges (273) (17,018) (353) (17,166)
Charge for Convertible Notes (1,223) -- (2,517) --
Issue (Repayment) of Obligations Under
Capital Lease 1,044 -- (27) --
Repayment of Long-term Liabilities -- (53,688) -- (53,688)
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CASH GENERATED 74,957 194,511 152,122 334,447
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INVESTING ACTIVITIES
Capital Expenditures (29,281) (133,212) (141,449) (243,190)
Insurance Proceeds 3,960 -- 3,960 --
Decrease (Increase) in Non-Cash
Working Capital (note 10) (64,743) 7,792 (31,645) (3,188)
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CASH INVESTED (90,064) (125,420) (169,134) (246,378)
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash (7,185) 67,212 (11,903) 84,878
Cash at Beginning of Period 9,710 70,239 14,428 52,973
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CASH AT END OF PERIOD $ 2,525 $ 137,451 $ 2,525 $ 137,451
====================================================================================================
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.
Effective June 1, 2003 the Corporation has commenced commercial operations and
accordingly has recorded revenues and expenses related to the Corporation's
share of operations of the Oil Sands Project.
1. INVENTORY
June 30, 2003 December 31, 2002
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(Unaudited)
Product Inventory $ 8,199 $ 4,175
Parts, Supplies and Other 4,383 --
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$ 12,582 $ 4,175
======================================================================================
2. CAPITAL ASSETS
June 30, 2003 December 31, 2002
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(Unaudited)
Oil Sands Project $ 1,285,166 $ 1,243,061
Oil Sands Project Assets Under Capital Lease 53,678 50,859
Corporate Assets 15,025 13,601
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1,353,869 1,307,521
Less Accumulated Depreciation (2,527) (532)
- --------------------------------------------------------------------------------------
$ 1,351,342 $ 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 June 30, 2003, $87.1 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 six months ended June
30, 2003 was $30.8 million (2002 - $8.2 million). Cash interest received for the
six months ended June 30, 2003 was $0.1 million (2002 - $1.2 million).
3. LONG-TERM DEBT
June 30, 2003 December 31, 2002
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(Unaudited)
US$450 million Senior Secured Notes $ 609,885 $ 710,820
Revolving Credit Facility 90,000 20,000
Senior Credit Facility 81,000 45,000
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$ 780,885 $ 775,820
======================================================================================
During the three months ended June 30, 2003 the Corporation increased the
availability under its Revolving Credit Facility by $35 million to a total of
$110 million.
The Corporation's US dollar denominated Senior Secured Notes (the "Notes") are
translated into Canadian dollars at the period end exchange rate. The unrealized
foreign exchange gain arising on the Notes was $101 million for the six months
ended June 30, 2003, of which $94 million was capitalized.
4. SHARE CAPITAL
ISSUED AND OUTSTANDING:
Number of Shares Amount
- --------------------------------------------------------------------------------------
COMMON SHARES
Balance at December 31, 2002 47,742,471 $ 414,311
Issued on Exercise of Employee Stock Options 114,600 986
Issued for Cash 2,050,000 50,225
Share Issue Costs, Net of Tax -- (1,270)
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BALANCE AT JUNE 30, 2003 49,907,071 464,252
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CLASS D PREFERRED SHARES, SERIES A
Balance at December 31, 2002 and June 30, 2003 666,667 11,963
- --------------------------------------------------------------------------------------
TOTAL ISSUED SHARE CAPITAL AT JUNE 30, 2003 50,573,738 $ 476,215
===============
OUTSTANDING:
Class A Warrants 494,224
Stock Options 1,302,900
- --------------------------------------------------------------------------------------
DILUTED SHARES AT JUNE 30, 2003 52,370,862
======================================================================================
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.
5. EARNINGS PER SHARE
The basic weighted average number of shares for the three and six month periods
ended June 30, 2003 are 50,546,903 and 50,098,995 respectively (2002 -
48,319,259 and 48,276,969 respectively). The diluted weighted average number of
shares for the three and six month periods ended June 30, 2003 are 51,462,216
and 50,996,305 respectively.
6. INCOME TAX
The future income tax asset (liability) consists of:
- --------------------------------------------------------------------------------------
June 30, 2003 December 31, 2002
- --------------------------------------------------------------------------------------
(Unaudited)
Future Income Tax Assets:
Net Losses Carried Forward $ 44,965 $ 19,069
Share Issue Costs 2,931 2,096
Debt Issue Costs 1,568 1,386
Future Income Tax Liabilities:
Renunciation of Deductions for
Flow-through Shares (21,377) (23,005)
Capital Assets in Excess of Tax Values (21,272) --
Unrealized Foreign Exchange Gain (1,231) --
- --------------------------------------------------------------------------------------
NET FUTURE INCOME TAX ASSET (LIABILITY) $ 5,584 $ (454)
======================================================================================
The following table reconciles income taxes calculated at the Canadian statutory
rate of 41.12% (2002 - 42.12%) with actual income taxes:
Three months ended Six months ended
June 30, June 30,
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(Unaudited) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------
Loss Before Income Taxes $ 567 $ 24,258 $ 2,062 $ 25,586
- ------------------------------------------------------------------------------------------------------------
Income Tax Recovery at
Statutory Rate (233) (10,217) (848) (10,777)
Effect of Tax Rate Changes (555) -- (555) --
Non-taxable Portion of
Foreign Exchange Gain (1,642) -- (1,642) --
Non-capital Loss Carryforward (1,079) -- (1,079) --
Other 92 55
Large Corporations Tax 768 423 1,536 850
Unrecognized Benefit of Losses -- 10,217 -- 10,777
- ------------------------------------------------------------------------------------------------------------
INCOME TAX (RECOVERY) EXPENSE $ (2,649) $ 423 $ (2,533) $ 850
============================================================================================================
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 earnings and earnings per
share would have been adjusted to the proforma amounts indicated below:
Three months ended Six months ended
June 30, June 30,
- ------------------------------------------------------------------------------------------------------------
(Unaudited) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------
Compensation Expense $ 301 $ 208 $ 538 $ 285
Net Earnings (Loss) Attributable to
Common Shareholders - as Reported 1,362 (24,681) (998) (26,436)
- ------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Attributable to
Common Shareholders - Proforma $ 1,061 $ (24,889) $ (1,536) $ (26,721)
============================================================================================================
Basic Net Earnings (Loss) per share:
- as Reported $ 0.03 $ (0.51) $ (0.02) $ (0.55)
============================================================================================================
- Proforma $ 0.02 $ (0.52) $ (0.03) $ (0.55)
============================================================================================================
The proforma amounts exclude the effect of stock options granted prior to
January 1, 2002. No options were granted during the three month period ended
June 30, 2003.
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 June 30, 2003 the Corporation's share
of committed payments amounted to $37.4 million.
(b) Contingencies
During the six months ended June 30, 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. Interim claims for
$90 million ($18 million for the Corporation's share) have been submitted and a
total of $4.0 million received as of June 30, 2003. No further 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 June 30, 2003:
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Instrument Notional Volume Hedge Period Price Unrealized
(Barrels per day) Received Gain (Loss)
- ------------------------------------------------------------------------------------------------------------
WTI Swaps 4,500 July 1, 2003 to March 31, 2004 Cdn$39.72 $ 1.6 million
WTI Swaps 9,000 April 1, 2004 to March 31, 2005 Cdn$36.97 $ 5.7 million
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10. CHANGES IN NON-CASH WORKING CAPITAL
Three months ended Six months ended
June 30, June 30,
- ------------------------------------------------------------------------------------------------------------
(Unaudited) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------
Source (Use):
Operating Activities
Accounts Receivable $ (30,984) $ -- $ (30,170) $ --
Inventory (7,268) -- (8,407) --
Accounts Payable and 51,183 -- 50,902 --
Accrued Liabilities
- ------------------------------------------------------------------------------------------------------------
$ 12,931 $ -- $ 12,325 $ --
- ------------------------------------------------------------------------------------------------------------
Investing Activities
Accounts Receivable $ 2,575 $ (1,150) $ 1,313 $ 2,296
Accounts Payable and Accrued (67,318) 8,942 (32,958) (5,484)
Liabilities
- ------------------------------------------------------------------------------------------------------------
$ (64,743) $ 7,792 $ (31,645) $ (3,188)
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