EXHIBIT 99.1
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[GRAPHIC OMITTED]
[COMPANY LOGO -- WESTERN OIL SANDS]
NEWS RELEASE - COMMUNIQUE
WESTERN OIL SANDS RELEASES THIRD QUARTER RESULTS
CALGARY, AB, OCTOBER 27, 2003 - Western Oil Sands Inc. ("Western") is pleased to
present its third quarter 2003 results and to provide an operational update for
the Athabasca Oil Sands Project (the "Project" or the "AOSP"). In our first full
quarter of reporting operating activities, Western recorded net revenue of $73.0
million, up from $16.2 million in the second quarter of 2003, and generated cash
flow from operations of $9.6 million ($0.19 per share) compared with negative
cash flow in the second quarter of $5.0 million. AOSP production volumes
averaged 116,300 barrels per day, which is 75% of the Project's design capacity
and almost double the 60,000 barrels per day reported by the Project for the
second quarter of 2003.
The AOSP continued to meet technical expectations and achieved bitumen
design capacity for short periods, however a variety of start-up challenges
affected operational reliability during the quarter, limiting the Project's
ability to sustain production at the design capacity level. We gained valuable
experience in dealing with these challenges and as we continue to move up the
operational learning curve we are achieving not only increases in production
volumes but also improved production reliability. At the same time, we are
seeing a decline in the nonrecurring ramp-up expenditures - all of which lead to
enhanced financial results. The focus heading into the fourth quarter of 2003
will be on continuous improvement while ramping up bitumen production at the
Mine to design capacity of 155,000 barrels per day (31,000 net to Western), and
the related synthetic crude production at the Scotford Upgrader (the "Upgrader")
to 190,000 barrels per day (38,000 net to Western).
Collecting on our cost overrun and project delay insurance claims, and
the Project's construction insurance claim remain an important focus for
Western. The Company's share of filed insurance claims and pending claims total
approximately $337.0 million. In addition, a Statement of Claim to preserve
Western's rights with regard to the cost overrun and project delay insurance
claim was filed. This Statement of Claim includes aggravated and punitive
damages totaling $650.0 million, and will only be served on the defendants and
pursued in the courts in the event that resolution procedures cannot otherwise
be agreed to on a timely basis.
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HIGHLIGHTS 3 MONTHS ENDED, 9 MONTHS ENDED,
----------------------------------- -----------------
JUNE 30, 2003* SEPT. 30, 2003 SEPT. 30, 2003*
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OPERATING DATA (BBLS/D)
Bitumen Production 16,957 23,260 21,760
Synthetic Crude Sales 18,612 31,390 28,250
FINANCIAL DATA ( $ THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net Revenue $ 16,155 $ 73,016 $ 89,171
Crude Oil Sales Price ($/bbl) $ 35.64 $ 35.07 $ 35.16
Cash Flow From Operations $ (5,009) $ 9,575 $ 2,359
Net Earnings (Loss) Attributable to Common $ 1,362 $ (1,159) $ (2,157)
Shareholders
Earnings (Loss) Per Share ($/share) $ 0.03 $ (0.02) $ (0.04)
Net Capital Expenditures $ 25,321 $ 3,281 $ 140,770
- -----------------------------------------------------------------------------------------------------------------
* THE THREE MONTHS ENDED JUNE 30, 2003 AND THE NINE MONTHS ENDED SEPTEMBER
30, 2003 PRESENTED ABOVE REPRESENTS WESTERN'S OPERATIONS FROM JUNE 1, 2003,
THE DATE COMMERCIAL OPERATIONS COMMENCED.
FINANCIAL RESULTS
The third quarter was the first full quarter of operations for Western. The
Company commenced reporting operations on a commercial basis effective June 1,
2003 and, as a result, comparisons to prior year, pre-operating information have
not been provided.
During the third quarter, Western's net loss attributable to common
shareholders was $1.2 million ($0.02 per share). This net loss includes $2.0
million of foreign exchange gains on its US denominated Senior Secured Notes.
EBITDA (earnings before interest, taxes, depletion, depreciation and
amortization), for the third quarter totaled $27.4 million (excluding foreign
exchange gains), while cash flow from operations was $9.6 million.
Western's financial results were negatively impacted in the third
quarter of 2003 as bitumen production averaged approximately 75% of design
capacity while operating expenses were higher than normal, due to various
equipment and operational challenges associated with ramp-up activities.
OPERATIONS
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3 MONTHS ENDED, 9 MONTHS ENDED,
- ------------------------------------------------------------------------------------------------------------------
JUNE 30, 2003* SEPT. 30, 2003 SEPT. 30, 2003*
- ------------------------------------------------------------------------------------------------------------------
REVENUE
Oil Sands 19,898 101,265 121,163
Marketing 5,242 23,887 29,129
Risk Management (210) (2,656) (2,866)
----------------------------------------------------------------
Total Revenue 24,930 122,496 147,426
================================================================
PURCHASED FEEDSTOCKS AND TRANSPORTATION
Oil Sands 3,599 25,212 28,811
Marketing 5,176 23,869 29,045
Transportation -- 399 399
----------------------------------------------------------------
Total Purchased Feedstocks and
Transportation 8,775 49,480 58,255
================================================================
NET REVENUE
Oil Sands 16,299 76,053 92,352
Marketing 66 18 84
Risk Management and Transportation (210) (3,055) (3,265)
----------------------------------------------------------------
Total Net Revenue 16,155 73,016 89,171
================================================================
SYNTHETIC CRUDE SALES (BBLS/D) 18,612 31,390 28,250
================================================================
CRUDE OIL SALES PRICE ($/BBL) 35.64 35.07 35.16
================================================================
- ------------------------------------------------------------------------------------------------------------------
* THE THREE MONTHS ENDED JUNE 30, 2003 AND THE NINE MONTHS ENDED SEPTEMBER
30, 2003 PRESENTED ABOVE REPRESENTS WESTERN'S OPERATIONS FROM JUNE 1, 2003,
THE DATE COMMERCIAL OPERATIONS COMMENCED.
Western earned $122.5 million in crude oil sales revenue in the third quarter of
2003, including $101.3 million from its share of crude oil available for sale
out of the Upgrader, at an average realized price of $35.07 per barrel. This
increased from the $19.9 million in synthetic crude sales for June 2003, at an
average realized price of $35.64 per barrel. After considering the impact of
feedstocks and transportation Western generated net revenue of $73.0 million,
including the $2.7 million reduction as a result of risk management activities
and $0.4 million in transportation costs downstream of Edmonton.
2
Western engages in a number of crude oil marketing transactions to
support the netbacks derived from its proprietary production and to build
long-term relationships within the refining community, including facilitating
the movement of Western's synthetic crude oil through an established
transportation infrastructure.
Western's share of Project operating expenses totaled $44.1 million for
the three-month period ended September 30, 2003. Included in operating expenses
are the costs of transporting bitumen from the Mine to the Upgrader and the
costs associated with removing overburden at the Mine. This equates to unit
operating costs of $20.61 per barrel of bitumen produced at current production
levels, but is not indicative of our expectations for future operating costs. As
expected, various equipment and operational challenges associated with
production ramp-up were encountered resulting in higher than normal operating
expenses for this transitional quarter. With a continued focus on resolving
these issues while moving up the operational learning curve, management
anticipates increases in production volumes and improved reliability over time,
along with a reduction in the nonrecurring ramp-up expenditures.
Western expensed $0.5 million in royalties in the third quarter of
2003. Royalties are calculated at one percent of the gross bitumen revenue
(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, royalties will be the
greater of one percent of gross bitumen revenue and twenty-five percent of net
bitumen revenue, after direct mining costs.
INTEREST
Interest expense reported in the third quarter of 2003 totaled $16.9 million
comprised primarily of interest on the US$450 million Senior Secured Notes.
Prior to Western reporting operating activities on June 1, 2003, all interest
was capitalized as part of the cost of construction.
DEPRECIATION, DEPLETION AND AMORTIZATION
During the third quarter of 2003, Western incurred $12.3 million in
depreciation, depletion and amortization. This reflects a full quarter of
depletion and depreciation ($8.5 million) and amortization ($3.8 million).
Depletion is calculated on a unit of production basis for Western's share of
Project capital costs while the Company's previously deferred financing charges
are amortized on a straight-line basis over the remaining life of the debt
facilities.
INCOME TAXES AND CHARGE FOR CONVERTIBLE NOTES
Western reported a future income tax recovery of $0.05 million for the quarter,
offset by Large Corporation Tax of $0.8 million (2002 - $0.4 million). A charge
for the Convertible Notes of $0.7 million (net of tax) in the third quarter of
2003, represents accretion of the liability component of these notes. The
Convertible Notes were classified as Shareholders' Equity until September 12,
2003, the last day that Western had an option to convert the notes to Share
Capital instead of repaying them. The Convertible Notes were then reclassified
to Long-term Debt, reflecting Western's decision to refinance the notes with
proceeds from the new $240 million Revolving Credit Facility. In accordance with
this classification, accretion was recorded up to September 12, 2003. Any
interest on the Convertible Notes after that date was included in interest
expense on the income statement.
LIQUIDITY AND CAPITAL RESOURCES
Non-cash working capital declined by $9.2 million during the third quarter of
2003. This decline was the result of a $14.9 million increase in accounts
payable and a $0.5 million decrease in inventory, offset by an increase in
accounts receivable of $6.2 million. Accounts payable increased during the third
quarter of 2003 as a result of accrued interest owing on the US$450 million
Senior Secured Notes, payable November 1, 2003. The increase in accounts
receivable reflects quarter over quarter growth in Western's synthetic crude
sales volumes.
3
During the third quarter Western repaid $14.0 million on its credit
facilities financed through both the positive cash flow and the decrease in
non-cash working capital from operations. At September 30, 2003, Western had
drawn a total of $157 million on its bank facilities.
On October 16, 2003 Western established a new Revolving Credit Facility
for $240 million. This new credit facility was established to refinance the
Convertible Notes, due on October 25, 2003, replacing the existing Revolving
Credit Facility and providing additional working capital resources to the
Company.
RISK MANAGEMENT
To date, three insurance claims relating to the fire and subsequent freeze
damage at the Mine totaling $110 million ($22 million net to Western) have been
presented to insurers for payment, with further submissions to follow. In
addition, the Joint Venture has filed a $500 million claim ($100 million for
Western's share) with insurers for loss of profits due to delays resulting from
the January fire. Western's own cost overrun and project delay insurance claims
total $500 million and have been submitted against the $200 million policy
limit. In order to preserve its rights with regard to the parties involved in
placing and issuing the policy, Western has filed a Statement of Claim in the
amount of $850 million against such parties. This Statement of Claim includes
aggravated and punitive damages totaling $650 million, and will only be served
on the defendants and pursued in the courts in the event that resolution
procedures cannot otherwise be agreed to on a timely basis. While Western
expects significant recoveries under these insurance policies, no provision for
insurance proceeds or the aggravated and punitive damages was made in the
financial statements at September 30, 2003, except for the $7.9 million of fire
insurance proceeds received to date. Upon receipt of any insurance 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
during the nine month period ended September 30, 2003, increasing the original
Revolving Credit Facility by $60 million and subsequently establishing the new
$240 million Revolving Credit Facility.
The objective of Western's hedging program is to mitigate exposure to
the volatility of crude oil prices, thereby stabilizing current and future cash
flow from the sale of our synthetic crude products. The Company's strategy is to
protect the base capital program and ensure funding of debt obligations by
providing a stable platform of cash flow. To this end, Western has entered into
contracts for 15,000 barrels per day of crude oil for the remainder of 2003 and
all of 2004 at average prices of US$28.18 and US$26.73 per barrel, respectively,
and for 9,000 barrels per day for the first three months of 2005 at US$25.63 per
barrel. With high crude oil prices in the third quarter of 2003 Western's risk
management program reduced pre-tax revenues by approximately $2.7 million.
CAPITAL EXPENDITURES
Western's capital expenditures for the third quarter of 2003 totaled $7.2
million. Included were expenditures of $3.2 million for Western's share of new
capital projects in the quarter, $3.4 million for capital repairs required as a
result of the January fire and $0.6 million of corporate assets.
4
JACKPINE EXPANSION
A regulatory hearing for the Jackpine Mine was completed on October 15, 2003.
This project includes a mining and extraction facility on the eastern portion of
Lease 13 to produce approximately 200,000 barrels per day of bitumen. Timing of
the development will depend on the outcome of the regulatory process and market
conditions, project costs, and sustainable development considerations.
THIS INFORMATION INCLUDES "FORWARD LOOKING STATEMENTS" BASED UPON CURRENT
EXPECTATIONS, ESTIMATES AND PROJECTIONS OF FUTURE PRODUCTION, PROJECT START-UPS
AND FUTURE CAPITAL SPENDING, THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED BY
THE CORPORATION. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO,
CHANGES IN; MARKET CONDITIONS, LAW OR GOVERNMENT POLICY, OPERATING CONDITIONS
AND COSTS, PROJECT SCHEDULES, OPERATING PERFORMANCE, DEMAND FOR OIL, GAS AND
RELATED PRODUCTS, PRICE AND EXCHANGE RATE FLUCTUATIONS, COMMERCIAL NEGOTIATIONS
OR OTHER TECHNICAL AND ECONOMIC FACTORS.
5
WESTERN OIL SANDS INC.
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30 AS AT DECEMBER 31
($ thousands) 2003 2002
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(UNAUDITED)
ASSETS
Current Assets
Cash $ 2,975 $ 14,428
Accounts Receivable 41,684 6,624
Inventory (note 1) 12,081 4,175
- ----------------------------------------------------------------------------------------------------------
56,740 25,227
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Capital Assets (note 2) 1,346,757 1,306,989
Deferred Charges 22,617 27,422
Future Income Taxes (note 6) 6,092 --
- ----------------------------------------------------------------------------------------------------------
1,375,466 1,334,411
- ----------------------------------------------------------------------------------------------------------
$ 1,432,206 $ 1,359,638
==========================================================================================================
LIABILITIES
Current Liabilities
Accounts Payable and Accrued Liabilities $ 73,812 $ 40,953
Convertible Notes (note 3) -- 4,055
- ----------------------------------------------------------------------------------------------------------
73,812 45,008
Long-term Liabilities
Long-term Debt (note 3) 852,680 775,820
Obligations Under Capital Lease 54,245 50,859
Future Income Taxes (note 6) -- 454
- ----------------------------------------------------------------------------------------------------------
906,925 827,133
- ----------------------------------------------------------------------------------------------------------
980,737 872,141
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SHAREHOLDERS' EQUITY
Share Capital (note 4) 476,349 426,275
Convertible Notes (note 3) -- 83,945
Deficit (24,880) (22,723)
- ----------------------------------------------------------------------------------------------------------
451,469 487,497
- ----------------------------------------------------------------------------------------------------------
$ 1,432,206 $ 1,359,638
==========================================================================================================
Subsequent Events (note 11)
See accompanying Notes to the Consolidated Financial Statements
6
WESTERN OIL SANDS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS
THREE MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
($ thousands, except per share amounts)
REVENUES $ 122,496 $ -- $ 147,426 $ --
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Operating Expenses 44,121 -- 57,002 --
Purchased Feedstocks and Transportation 49,480 -- 58,255 --
Royalties 513 -- 651 --
General and Administrative 972 1,344 4,273 4,085
Interest 16,896 -- 22,429 --
Depreciation, Depletion and Amortization 12,324 49 15,681 135
Write-off of Deferred Financing Costs -- -- -- 22,759
Foreign Exchange Gain (2,041) -- (9,034) --
- ---------------------------------------------------------------------------------------------------------------------
122,265 1,393 149,257 26,979
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 231 (1,393) (1,831) (26,979)
- ---------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes (note 6):
Current Income Taxes 775 428 2,311 1,278
Future Income Taxes (46) -- (4,115) --
=====================================================================================================================
729 428 (1,804) 1,278
=====================================================================================================================
NET LOSS (498) (1,821) (27) (28,257)
Charge for Convertible Notes (net of tax) 661 -- 2,130 --
=====================================================================================================================
Net Loss Attributable to Common
Shareholders (1,159) (1,821) (2,157) (28,257)
Deficit at Beginning of Period (23,721) (38,873) (22,723) (12,437)
- ---------------------------------------------------------------------------------------------------------------------
DEFICIT AT END OF PERIOD $ (24,880) $ (40,694) $ (24,880) $ (40,694)
=====================================================================================================================
NET LOSS PER SHARE (NOTE 5):
Basic $ (0.02) $ (0.04) $ (0.04) $ (0.59)
=====================================================================================================================
See accompanying Notes to the Consolidated Financial Statements
7
WESTERN OIL SANDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------
($ thousands)
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net Loss $ (498) $ (1,821) $ (27) $ (28,257)
Non-cash items:
Depreciation, Depletion and Amortization 12,324 49 15,681 135
Write-off of Deferred Charges -- -- -- 22,759
Unrealized Foreign Exchange Gain (2,205) -- (9,180) --
Future Income Tax Recovery (46) -- (4,115) --
===================================================================================================================
CASH FROM OPERATIONS 9,575 (1,772) 2,359 (5,363)
Decrease in Non-Cash Working Capital (note 10) 7,554 -- 19,879 --
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17,129 (1,772) 22,238 (5,363)
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FINANCING ACTIVITIES
Issue of Share Capital 152 283 51,362 1,651
Share Issue Expenses (18) -- (2,209) --
Issue (Repayment) of Long-term Debt (14,000) 78,000 92,000 507,358
Deferred Charges (22) (288) (375) (17,454)
Charge for Convertible Notes (1,123) -- (3,640) --
Repayment of Obligations Under
Capital Lease (46) -- (73) --
Repayment of Long-term Liabilities -- -- -- (53,688)
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CASH GENERATED (USED) (15,057) 77,995 137,065 437,867
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INVESTING ACTIVITIES
Capital Expenditures (7,241) (145,348) (148,690) (413,963)
Insurance Proceeds 3,960 -- 7,920 --
Decrease (Increase) in Non-Cash
Working Capital (note 10) 1,659 12,881 (29,986) 9,693
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CASH INVESTED (1,622) (132,467) (170,756) (404,270)
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash 450 (56,244) (11,453) 28,234
Cash at Beginning of Period 2,525 137,451 14,428 52,973
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CASH AT END OF PERIOD $ 2,975 $ 81,207 $ 2,975 $ 81,207
===================================================================================================================
See accompanying Notes to the Consolidated Financial Statements
8
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 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
SEPTEMBER 30, 2003 DECEMBER 31, 2002
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(Unaudited)
Product Inventory $ 5,273 $ 4,175
Parts, Supplies and Other 6,808 --
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$ 12,081 $ 4,175
============================================================================================
2. CAPITAL ASSETS
SEPTEMBER 30, 2003 DECEMBER 31, 2002
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(Unaudited)
Oil Sands Project $ 1,287,916 $ 1,243,061
Oil Sands Project Assets Under Capital Lease 54,318 50,859
Corporate Assets 15,557 13,601
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1,357,791 1,307,521
Less Accumulated Depreciation (11,034) (532)
- --------------------------------------------------------------------------------------------
$ 1,346,757 $ 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 September 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 nine months ended
September 30, 2003 was $33.5 million (2002 - $9.0 million). Cash interest
received for the nine months ended September 30, 2003 was $0.1 million (2002 -
$2.0 million).
9
3. LONG-TERM DEBT
SEPTEMBER 30, 2003 DECEMBER 31, 2002
- -------------------------------------------------------------------------------------------
(Unaudited)
US$450 million Senior Secured Notes $ 607,680 $ 710,820
Senior Credit Facility 90,000 45,000
Revolving Credit Facility 67,000 20,000
Convertible Notes 88,000 --
- -------------------------------------------------------------------------------------------
$ 852,680 $ 775,820
===========================================================================================
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 $103.1 million for the nine
months ended September 30, 2003, of which $94.0 million was capitalized.
On September 12, 2003 the Corporation's conversion option on the Convertible
Notes expired. As a result the Convertible Notes will be settled on their
October 25, 2003 maturity date. The Corporation will refinance these Convertible
Notes using availability that it will have under its new Revolving Credit
Facility (see Note 11).
4. SHARE CAPITAL
ISSUED AND OUTSTANDING:
NUMBER OF SHARES AMOUNT
- --------------------------------------------------------------------------------------
COMMON SHARES
Balance at December 31, 2002 47,742,471 $ 414,312
Issued on Exercise of Employee Stock Options 126,400 1,137
Issued for Cash 2,050,000 50,225
Share Issue Costs, Net of Tax -- (1,288)
- --------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2003 49,918,871 464,386
- --------------------------------------------------------------------------------------
CLASS D PREFERRED SHARES, SERIES A
Balance at December 31, 2002 and September 30, 2003 666,667 11,963
- --------------------------------------------------------------------------------------
TOTAL ISSUED SHARE CAPITAL AT SEPTEMBER 30, 2003 50,585,538 $ 476,349
============
OUTSTANDING:
Class A Warrants 494,224
Stock Options 1,291,100
- --------------------------------------------------------------------------
DILUTED SHARES AT SEPTEMBER 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.
10
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. LOSS PER SHARE
The basic weighted average number of shares for the three and nine month periods
ended September 30, 2003 are 50,578,895 and 50,260,719 respectively (2002 -
48,354,038 and 48,307,315 respectively). Due to a loss for the three and nine
month periods ended September 30, 2003, zero incremental shares are included for
the diluted earnings per share weighted average number because the effect would
be anti-dilutive.
6. INCOME TAX
The future income tax asset (liability) consists of:
- ------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2003 DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------
(Unaudited)
Future Income Tax Assets:
Net Losses Carried Forward $ 40,486 $ 19,069
Share Issue Costs 2,937 2,096
Debt Issue Costs 3,134 1,386
Future Income Tax Liabilities:
Renunciation of Deductions for Flow-through Shares (21,345) (23,005)
Capital Assets in Excess of Tax Values (17,530) --
Unrealized Foreign Exchange Gain (1,590) --
- ------------------------------------------------------------------------------------------------------------------
NET FUTURE INCOME TAX ASSET (LIABILITY) $ 6,092 $ (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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------
(Unaudited) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes $ 231 $ (1,393) $ (1,831) $ (26,979)
- ------------------------------------------------------------------------------------------------------------------
Income Tax Recovery at 95 (587) (753) (11,364)
Statutory Rate
Effect of Tax Rate Changes 692 -- 137 --
Non-taxable Portion of
Foreign Exchange Gain (486) -- (2,128) --
Non-capital Loss Carryforward (347) -- (1,371) --
Large Corporations Tax 775 428 2,311 1,278
Unrecognized Benefit of Losses -- 587 -- 11,364
- ------------------------------------------------------------------------------------------------------------------
INCOME TAX (RECOVERY) EXPENSE $ 729 $ 428 $ (1,804) $ 1,278
==================================================================================================================
11
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------
(Unaudited) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Compensation Expense $ 304 $ 214 $ 842 $ 498
Net Loss Attributable to Common Shareholders -
as Reported (1,159) (1,821) (2,157) (28,257)
- ------------------------------------------------------------------------------------------------------------------
Net Loss Attributable to Common Shareholders -
Proforma $ (1,463) $ (2,035) $ (2,999) $ (28,755)
==================================================================================================================
Basic Net Loss per share:
- as Reported $ (0.02) $ (0.04) $ (0.04) $ (0.59)
==================================================================================================================
- Proforma $ (0.03) $ (0.04) $ (0.06) $ (0.60)
==================================================================================================================
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
September 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 September 30, 2003 the Corporation's
share of committed payments amounted to $45.3 million.
(b) Contingencies
During the nine months ended September 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
$110 million ($22 million for the Corporation's share) have been submitted and a
total of $7.9 million received by the Corporation as of September 30, 2003 for
property damages. The Joint Venture has also filed a $500 million claim ($100
million for the Corporation's share) in respect of loss of profits due to
production delays resulting from the fire.
Western has filed a Statement of Claim, against the parties involved in placing
and issuing the cost overrun and start up delay insurance policy, in an amount
exceeding $200 million. Aggravated and punitive damages totaling $650 million
have also been claimed against the insurers. The Statement of Claim will only be
served on the insurers and pursued in the courts in the event that resolution
procedures cannot otherwise be agreed to on a timely basis.
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No further amounts, other than those collected at September 30, 2003, have been
recognized in these statements relating to these insurance policies nor will an
amount be recognized until the proceeds are received.
9. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Corporation has entered into various commodity pricing agreements designed
to mitigate the exposure to the volatility of crude oil prices in US dollars.
The agreements are summarized as follows at September 30, 2003:
- ------------------------------------------------------------------------------------------------------------------
UNREALIZED INCREASE
(DECREASE) TO FUTURE
NOTIONAL VOLUME SWAP PRICE REVENUE
INSTRUMENT (bbls/d) HEDGE PERIOD ($/bbl) (Cdn $'s)
- ------------------------------------------------------------------------------------------------------------------
WTI Swaps 15,000 October to December 2003 US$28.18 $ (1,526)
WTI Swaps 15,000 Fiscal 2004 US$26.73 $ (667)
WTI Swaps 9,000 January to March 2005 US$25.63 $ 12
==================================================================================================================
10. CHANGES IN NON-CASH WORKING CAPITAL
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------
(Unaudited) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Source (Use):
Operating Activities
Accounts Receivable $ (7,443) $ -- $ (37,613) $ --
Inventory 501 (3,119) (7,906) (3,119)
Accounts Payable and Accrued Liabilities 14,496 3,119 65,398 3,119
- ------------------------------------------------------------------------------------------------------------------
$ 7,554 $ -- $ 19,879 $ --
- ------------------------------------------------------------------------------------------------------------------
Investing Activities
Accounts Receivable $ 1,240 $ 732 $ 2,553 $ 3,028
Accounts Payable and Accrued Liabilities 419 12,149 (32,539) 6,665
- ------------------------------------------------------------------------------------------------------------------
$ 1,659 $ 12,881 $ (29,986) $ 9,693
==================================================================================================================
11. SUBSEQUENT EVENTS
On October 16, 2003 the Corporation established a new Revolving Credit Facility
in the amount of $240 million to refinance the Convertible Notes and the
existing Revolving Credit Facility, and to provide additional working capital
availability.
13
The Common Shares of Western are listed on the Toronto Stock Exchange under the
symbol "WTO".
- 30 -
FOR FURTHER INFORMATION PLEASE CONTACT:
Guy J. Turcotte David A. Dyck
President and Vice President Finance and
Chief Executive Officer Chief Financial Officer
(403) 233-1700 (403) 233-1700
NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE
UNITED STATES
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