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SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D. C. 20549
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FORM 10
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
INDO-PACIFIC ENERGY LTD.
(Exact name of registrant as specific in its charter)
British Columbia, Canada Not Applicable
(State of Incorporation) (I.R.S. Employer
Identification No.)
1200-1090 West Pender Street
Vancouver, British Columbia Canada V6E 2N7
(Address of executive offices.) (Postal Code)
Registrant's telephone number: (604) 682-6496
Copies to: G. A. MacDonald
Indo-Pacific Energy Ltd.
1200-1090 West Pender Street
Vancouver, British Columbia
Canada V6E 2N7
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
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(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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(Title of Class)
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ITEM 1. BUSINESS
GENERAL
Indo-Pacific Energy Ltd. (the "Registrant") is an oil and
gas exploration company based in Vancouver, British Columbia, Canada
which has interests in the Asia-Pacific region in hydrocarbon
properties described in Item 3. The Registrant is to a lesser
extent involved in the development and production of
hydrocarbons. The majority of the Registrant's properties are in the
exploration stage. Total production revenue for the nine months ended
September 30, 1997 was CDN$500,267. The Registrant's focus is on the
acquisition, exploration and development of properties in the
Asia-Pacific region, with the objective of establishing a solid
cash flow base, and participating in high potential exploration blocks
in under-explored countries with attractive fiscal regimes.
All monetary amounts contained in this Statement are, unless
otherwise indicated, expressed in Canadian dollars. On September
29, 1997 the buying rate for Canadian dollars was US$1.00 for
CDN$1.3837. Rates of exchange are obtained from the Bank of
Canada and believed by the Registrant to approximate closely the rates
certified for customs purposes by the Federal Reserve Bank in New
York. See Item 2. Financial Information - Exchange Rates.
General Development of the Business
The Registrant was incorporated on July 31, 1979 under the
name Pryme Energy Resources Ltd. by the registration of
memorandum and articles under the Company Act (British Columbia, Canada).
On March 21, 1980 the Registrant became a reporting or distributing
company in British Columbia with the issuance of a receipt for
its initial prospectus offering. The business of the Registrant was
not successful and the Registrant was reorganized. On August 23, 1985
the name was changed to Newjay Resources Ltd. and a consolidation of
its common shares on a 2.5 old for one new basis occurred. The
business of the Registrant was the exploration for hydrocarbons in
Alberta, California and Texas. The business of the Registrant was not
successful and the Registrant was again reorganized. The
Registrant applied for and was deemed inactive by the Vancouver Stock
Exchange on February 26, 1993 and subsequently completed a reorganization
satisfactory to the Vancouver Stock Exchange and was removed from
inactive status on April 25, 1994. On August 25, 1993 the name
of the Registrant was changed to Consolidated Newjay Resources Ltd.
and a consolidation of its common shares on a 3.5 old for one new
basis occurred. The Registrant did not commence any business after
these events until 1996.
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In April 1995, control of the Registrant was acquired by Mr.
Alex Guidi, who is currently a member of the board of directors,
chairman and the promoter of the Registrant, and the current
business of the Registrant began to be organized. See "ITEM 7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." On May 9, 1995
the name of the Registrant was changed to its current name. A
stock subdivision of its common shares on a 1.5 new for one old
basis occurred on April 15, 1996 and a further subdivision of its
common shares on a two new for one old basis on May 31, 1996
occurred. The Registrant began to acquire its current
hydrocarbon assets in 1996. See "ITEM 3. PROPERTIES."
The common shares of the Registrant commenced trading in
January 1996 on the Bulletin Board operated by the National
Association of Securities Dealers, Inc. (the "Bulletin Board")
and trades under the symbol "INDX." Trading in the common shares of
the Registrant was halted by the Vancouver Stock Exchange on
September 12, 1996 and the Registrant was voluntarily delisted
from the Vancouver Stock Exchange on September 13, 1996.
On September 25, 1997 the Registrant was continued from
being a corporation subsisting under the Company Act (British Columbia)
to a corporation subsisting under the Business Corporations Act
(Yukon). The Registrant maintains its head office in Vancouver,
British Columbia and an exploration office in Wellington, New
Zealand.
In 1996 and the first nine months of 1997, the Registrant
acquired interests in petroleum exploration licenses in New
Zealand, Australia and Papua New Guinea. The Registrant also
acquired the outstanding shares of Minora Energy (New Zealand )
Ltd. and entered into a joint study agreement with China National
Oil and Gas Exploration and Development Corporation for the study
of the Nanling and Wuwei basins, Anhui province, China. The
exploration of certain of the petroleum interests commenced in
1996. The Registrant continued to acquire and explore petroleum
interests.
The Registrant's operations are conducted through its
wholly-owned subsidiaries, as described below:
The Registrant - 100%
Indo-Pacific Energy (NZ) Limited Indo-Pacific Energy (PNG)
Pty. Ltd.
100% Indo Overseas Indo-Pacific Energy
Exploration Ltd. (B.C.) Pty. Ltd. (Aust.)
Ngatoro Energy Limited (N.Z.)
100%
PEP 38716
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Unless the context indicates otherwise, the "Registrant" will
refer to Indo-Pacific Energy Ltd. and its subsidiaries.
The Registrant has financed the revival and conduct of its
business by the issuance of common shares and other securities by
way of private placements.
DISCUSSION OF DEVELOPMENT OF BUSINESS
Development of Business
The following is a discussion of the development of the
business of the Registrant between January 1, 1996 and September
30, 1997. For a discussion of intended operations to September
30, 1998. See "ITEM 1. BUSINESS - PLAN OF OPERATIONS." All
references to percentage of ownership are working interests.
New Zealand, East Coast Basin, North Island
Petroleum Prospecting License PPL 38312 (10.5%)
PPL 38312 was granted on August 26, 1996 to Asia Pacific Oil
Co. Ltd. In August 1997, the Registrant earned a participating
interest of 10.5% in the license by funding 10.5% of the costs of
drilling the Waitaria-1 well. The other participants are Asia
Pacific Oil Co. Ltd. (64.5%%), Arthur Oil Ltd. (2.5%), Everest
Oil Co. Ltd. (12.5%) and Trans-Orient Petroleum Ltd. (10.0%). Asia
Pacific Oil Co. Ltd. is the operator. The permit expires in
November 1998, but is renewable for a further five years over 50%
of the permit area. Any production permits granted will be for a
term of up to 40 years from the date of issue. The Crown in
right of New Zealand has reserved a royalty of five percent of net
sales revenue from the sale of petroleum products.
The conditions of the permit require the participants by
October 1997, to re-enter and complete the drilling of Waitaria-1
well to 1600 meters unless geological or engineering constraints
make this unreasonable and before November 15, 1997 to assess the
well and if appropriate apply for an extension of the duration of
the license in order to undertake a further work program.
In the third quarter of 1997, the participants drilled the
Waitaria-1 well which encountered gas bearing formations, but was
abandoned due to engineering problems encountered while drilling
before the target Tunani sandstones were reached.
The participants intend to collect seismic data in the first
half of 1998 to define additional drilling targets and to apply
for a renewal of PPL 38312 in 1998.
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Petroleum Exploration Permit PEP 38328 (40.0%)
PEP 38328 was granted on July 1, 1996. The Registrant
assigned a 10% working interest to Trans-Orient Petroleum Ltd. in
consideration that Trans-Orient pay for 20% of the dry hole costs
of drilling the Kereru-1 well. By an agreement dated November 1,
1996, and subsequent arrangements, Boral Energy Resources Limited
acquired a 37.5% participating interest in PEP 38328 from the
Registrant and other parties, by funding a disproportionate share
of costs associated with the drilling of the Kereru-1 well, up to
and including the plugging and abandonment of the well. By an
agreement dated September 15, 1997 the Registrant paid the costs
of Trans-Orient in consideration that Trans-Orient issue to the
Registrant 233,510 common shares at $1.3918 (US$1.00) per share.
The other participants in the license are Trans-Orient
Petroleum Ltd. (22.5%) and Boral Energy Resources Limited
(37.5%). The Registrant is the operator. The permit area is 785,000 acres
(1,226 square miles). The permit is for five years, renewable
for a further five years over 50% of the license area. Any
production permits granted will be for a term of up to 40 years from the
date of issue. The Crown in right of New Zealand reserved a royalty
of five percent of net sales revenue from the sale of petroleum
products.
The conditions of the permit require that before July 1,
1997 the participants reprocess existing seismic data over the Kereru
Prospect, collect, process and interpret at least eight km of new
seismic data and drill one exploration well to a minimum depth of
1,500 meters to test the Pliocene section of the Kereru Prospect.
Before July 1, 1998 the participants are required to collect and
process 240 km of new seismic data and reprocess 300 km of
existing seismic data. By July 1, 1999 the participants are required to
conduct geologic field studies and complete a permit review
report. By July 1, 2000 the participants are required to collect such
other data as is necessary to make a drilling decision and, subject to
their commitment to do so, by July 1, 2001 to drill an
exploration well to a depth of at least 1,500 meters.
In the fourth quarter of 1996, the Kereru-l exploration well
was drilled to a depth of 1,938 meters (6,391 feet). Several
thin and separated potential pay reservoir sandstones were
encountered, but the Registrant and the other participants decided that
the results did not justify the expense of flow testing the well.
The well was plugged. In the first half of 1997, a 120 mile seismic
survey costing approximately $1,000,000 was completed. Data was
exchanged with adjacent permit holders and indicated a previously
unidentified structure in the northern part of the permit area.
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At September 30, 1997 further exploration was to be
determined after processing and interpretation of new and existing seismic
data.
Petroleum Exploration Permit PEP 38330 (34%)
PEP 38330 was granted on July 1, 1996. The other participants
are Mosaic Oil NL (33%) and Moondance Energy Property Ltd. (33%).
The Registrant is the operator. The permit area is 1,077,000
acres (1,683 square miles). The permit term is for five years,
renewable for a further five years over 50% of the permit area. Any
production permits granted will be for a term of up to 40 years
from the date of issue. The Crown in right of New Zealand has
reserved a royalty of five percent of net sales revenue from the
sale of petroleum products.
The conditions of the permit require the participants by July
1, 1997 to review all existing data, undertake field sampling,
reprocess a minimum of 80 km of existing seismic data and undertake
certain test for seismic planning purposes. By July 1, 1998 the
participants are required to collect, process and interpret a
minimum of 12 km of seismic data and undertake a structural review
of the permit area. By July 1, 1999 the participants are required
either to collect, process and interpret a minimum of 60 km of
seismic data, and either commit to drill an exploration well before
July 1, 2001 or to collect, process and interpret a further 25 km
of seismic data before July 1, 2001. Subject to their commitment
to do so, the participants are required to drill an exploration
well before July 1, 2001 and submit a further program of
exploration for approval.
At September 30, 1997 a 25 km regional seismic line had been
completed over the main structural features in the license area,
including the Matanui and Pauariki anticlines, both of which may be
drilling targets. Data is being processed before a decision on
further exploration is made. Also, the Waingoromia-1 well, which
produced in the 1880's, was relocated and found to be leaking
hydrocarbons.
Petroleum Exploration Permit PEP 38332 (42.5%)
PPL 38332 was granted on August 25, 1997. The other
participants are Boral Energy Resources Limited. (37.5%) and Trans
New Zealand Oil Company Ltd. (20%). The Registrant is the
operator. The permit area is situated immediately south of PEP
38328 and is 1,012,000 acres (1,581 square miles) in area. The
permit term is for five years, renewable for a further five years
over 50% of the license area. Any production permits granted will
be for a term of up to 40 years from the date of issue. The Crown
in right of New Zealand has reserved a royalty of five percent of
net sales revenue from the sale of petroleum products.
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By December 24, 1998, the participants are required to
reprocess 100 km of existing seismic data, collect 25 km of new
seismic data, undertake photogeologic and field geological mapping,
complete an evaluation of the exploration potential of the permit
area and make a further work commitment or relinquish the permit.
By December 24, 1999, the participants are required to collect 50
km of seismic data, complete an evaluation of the exploration
potential of the permit area and make a further work commitment or
relinquish the permit. By June 24, 2000, the participants are
required to drill one exploration well and submit a further program
of work for approval.
At September 30, 1997 a regional seismic program had been
completed over the northern part of the permit area. This and
earlier data are being processed before a decision on further
exploration is made.
Petroleum Exploration Permit PEP 38723 (40%)
PEP 38723 was granted on October 30, 1997. The other
participants are Trans-Orient Petroleum Ltd. (40.0) and Trans New
Zealand Oil Company (20.0%). The Registrant is the operator. The
permit area is 19,783 acres (30.9 square miles) in area. The
permit term is for five years, renewable for a further five years
over 50% of the license area. Any production permits granted will
be for a term of up to 40 years from the date of issue. The Crown
in right of New Zealand has reserved a royalty of five percent of
net sales revenue from the sale of petroleum products.
By January 31, 1999, the participants must reprocess a minimum
of 50 km of seismic data, re-evaluate prospects and leads, review
relevant existing wells to identify a potential Mount Messenger
sand play and develop a sand distribution model in conjunction with
the seismic interpretation, identify and high grade leads for
further seismic acquisition and either make a firm commitment to
continue the work program or surrender the permit. By April 30,
2000 the participants must collect a minimum of six square km of 3D
seismic data, or 2D swathe coverage of equivalent detail, interpret
the new data and identify and consider drilling targets. If the
participants continue, by October 30, 2000 they must drill an
exploration well to a minimum depth of 1600 meters unless
geological or engineering constraints encountered while drilling
make this unreasonable and either submit a satisfactory work
program for the remainder of the permit term or surrender the
permit.
In 1996 and 1997, previous holders of PEP 38723 reprocessed
seismic data and the Registrant is involved in a seismic
reprocessing program in the area. Completion of this work is
required to be able to identify prospects. Before January 31, 1999
the participants intend to carry out the first phase of the
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required work at an estimated cost of US$75,000 and, if results
warrant, proceed to the second stage of the work program at an
estimated cost of US$420,000.
New Zealand, Onshore Canterbury Basin, South Island
Petroleum Exploration Permit 38256 (35%)
PEP 38256 was granted on August 25, 1997 to the Registrant and
to Trans-Orient Petroleum Ltd. The Registrant and Trans-Orient
Petroleum Ltd. assigned an interest of 20% to Trans New Zealand Oil
Company and an interest of 10% to Gondwana Energy Ltd., leaving
each of the Registrant and Trans-Orient Petroleum Ltd. with an
interest of 35%. The Registrant is the operator. The permit area
is situated in the area surrounding Christchurch, South Island and
is 2,760,120 acres (4,312.69 square miles) in area. The permit
term is for five years, but at the end of the third year of the
permit the participants must relinquish at least 50% of the permit
area. Any production permits granted will be for a term of up to
40 years from the date of issue. The Crown in right of New Zealand
has reserved a royalty of five percent of net sales revenue from
the sale of petroleum products.
By November 25, 1998 the participants are required to locate
and analyze petroleum seeps within the permit area, model existing
gravity data and acquire new gravity data, collect and interpret a
minimum of ten magnetotelluric stations, process existing seismic
data and complete surface geological work. If the permit is not
surrendered, the participants are required by August 25, 1999 to
collect, process and interpret 80 kilometers of new seismic data.
If the permit is not surrendered, by February 25, 2000 the
participants are required to acquire, process and interpret 120
kilometers of new seismic data. If the permit is not surrendered,
the participants are required by August 25, 2000 to drill an
exploration well to the lesser of 1200 meters or the economic
basement.
At September 30, 1997 the participants were planning the first
phase of required work in order to determine the geologic structure
of the sedimentary basin. If the interpretation of the geologic
structure indicates the possible existence of hydrocarbons, the
participants will conduct further seismic surveys in order to
determine the location of possible drill targets.
New Zealand, Onshore Taranaki Basin, North Island
Petroleum Mining Permit PMP 38148 (5.0%)
Effective September 1, 1996 the Registrant bought the
outstanding shares of Minora Energy (New Zealand) Limited for
AUS$575,000 (CDN$478,755, US$348,790). The name of the company
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was changed to Ngatoro Energy Limited. Ngatoro Energy Limited owns
a five percent participating interest and revenue interest in
petroleum mining permit 38148, which has four producing oil wells
and two shut-in gas wells. The permit expires on December 23,
2010. Production is from turbidite sandstones of the Mount
Messenger Formation at depths of 1,500 meters to 2,000 meters. The
other participants are New Zealand Oil & Gas Ltd. (35.43%) and
Fletcher Challenge Energy Taranaki Ltd. (59.57%). New Zealand Oil
& Gas Ltd. is the operator. The Crown in right of New Zealand has
reserved a royalty of five percent of net sales revenue from the
sale of petroleum products.
In the nine months ended September 30, 1997, the Registrant
received revenues of $500,267. Production from the four oil wells
remained steady at between 1,400 and 1,500 barrels per day. A flow
test was done on one of the shut-in gas wells flowed gas at
sustained rates in excess of four million cubic feet per day,
establishing a new gas field in the permit area. At September 30,
1997 the participants planned to rework the producing wells,
develop the gas well, and drill two additional wells. Negotiations
are progressing to sell flare gas and booked gas reserves from the
existing wells to a contract total of ten billion cubic feet.
Petroleum Prospecting License PPL 38706 (7.75%)
PPL 38706 is in the last year of its ten year term and will
expire on August 1, 1998. Before that date, the participants are
required to drill one exploration well. Two well locations are
under consideration for drilling in the second quarter of 1998.
Should a discovery be made, the participants may apply for a
petroleum mining permit over the extent of the discovery for a term
of up to 40 years. The license is operated by Fletcher Challenge
Energy Taranaki Ltd. which holds the remaining 92.25% working
interest in the license. The Crown in right of New Zealand has
reserved a royalty of five percent of net sales revenue from the
sale of petroleum products.
Petroleum Exploration Permit PEP 38716 (24.8%)
A participating interest of 38.4% in PEP 38716 was acquired by
the Registrant on January 30, 1996. On application, the effective
date was changed to April 10, 1996. A participating interest of
six percent was assigned to Durum Energy Corp. By agreement
effective July 1, 1997 with Australian Worldwide Exploration NL,
the participants assigned a 25% participating interest to
Australian Worldwide in consideration that Australian Worldwide pay
50% of the dry hole costs of drilling an exploration well to earn
a 25% interest. After giving effect to this assignment, the other
participants are Durum Energy Corp. (4.0%), Marabella Enterprises
Ltd. (39.6%), Euro-Pacific Energy
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Pty. Ltd. (6.6%) and Australian Worldwide Exploration NL (25.0%).
Marabella Enterprises Limited, a subsidiary of Bligh Oil &
Minerals NL, is the operator.
The permit is about 67,000 acres (104 square miles) in area.
The permit term is for five years, renewable for a further five
years over 50% of the license area. Any production permits granted
will be for a term of up to 40 years from the date of issue. The
Crown in right of New Zealand has reserved a royalty of five
percent of net sales revenue from the sale of petroleum products.
The conditions of the permit require the participants within
18 months of the commencement date to reinterpret 250 km of
existing seismic data, acquire, process and interpret 30 km of new
seismic data, collect gravity data and commit to a second phase of
work. The second phase of work requires the participants to drill
an exploration well to a depth of 2,500 meters or another approved
depth before August 1, 1998. In the second quarter of 1996, a
program of aeromagnetic survey and reprocessing of existing seismic
data was undertaken. In the first quarter of 1997 a total of 60 km
of new seismic data was acquired to assist in defining a drill
location on the Crown Prospect in the northern part of the permit
area. The program confirmed the presence of the Crown Prospect at
the Tikorangi Limestones and deeper levels and also detailed the
shallower Oru Prospect. Drilling of an exploration well is
scheduled for the second quarter of 1998.
Petroleum Exploration Permit PEP 38720 (50.0%)
A participating interest of 50% in PEP 38720 was acquired by
the Registrant on September 2, 1996. The other participant is
Trans-Orient Petroleum Ltd. The Registrant is the operator.
The permit is approximately 6,322 acres (9.8 square miles) in
area and the term of the permit is five years, renewable for a
further five years over 50% of the permit area. Any production
permits granted will be for a term of up to 40 years from the date
of issue. The Crown in right of New Zealand reserved a royalty of
five percent of net sales revenue from the sale of petroleum
products.
Before September 2, 1997, the participants are obligated to
reprocess a minimum of 100 miles of existing seismic data,
undertake modeling of the seismic data to investigate reservoir
distribution, undertake a reservoir engineering review of flow-tested
off-set wells to investigate likely productivity potential
within the permit area and either commit to drill one exploration
well before September 2, 1998 or commit to collect, process and
interpret a minimum of 15 km of new seismic data before March 31,
1999. If an exploration well is drilled, a program for further
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exploration must then be submitted for approval. If further
seismic work is done, the participants must commit by March 31,
1999 to drill an exploration well before September 2, 1999 or
relinquish the permit.
In the first half of 1997, the participants completed 38 km of
seismic survey. At September 30, 1997 the data had been processed
and confirmed the Waitoriki Prospect as a sizable gas-condensate
drilling target within the Kapuni formation at depths below 3,500
meters. Sandstones of the Mount Messenger Formation are also oil
discovery objectives at depths between 1,500 and 2,000 meters. The
participants are planning to drill an exploration well at an
estimated cost of US$1,200,000 when a drilling rig becomes
available in 1998. The Registrant's portion of budgeted costs is
US$600,000.
Papua New Guinea
Petroleum Prospecting License PPL 192 (40.0%)
A participating interest of 80% in PPL 192 was acquired by the
Registrant in January 1997. The Registrant assigned a 20%
participating interest to each of Trans-Orient Petroleum Ltd. and
Durum Energy Corp. The remaining participant is Mosaic Oil Niugini
Pty. Ltd. (20%). The Registrant is the operator.
PPL 192 grants the exclusive right to explore for petroleum
for an initial six year term commencing January 28, 1997,
extendable for a further five year term over 50% of the original
area, and the exclusive right to enter into a production agreement
upon a discovery. A production agreement provides the right to
produce any oil and gas discovered for a period of up to 30 years
from discovery, subject to a maximum 22.5% participating interest
that can be acquired by the Government of Papua New Guinea and a
two percent participating interest that can be acquired by local
landowners.
PPL 192 comprises some 1,200,000 acres (1,875 square miles)
located in the foreland of the Papuan Basin, immediately south of
the Highlands fold belt. Previous seismic work by Shell US
(Pecten) identified a number of exploration targets and drilled the
Langia-1 gas discovery well. However, the license has in general
been only lightly explored. The main areas of interest are the
Kamu Prospect, the Mamboi Prospect and the area surrounding the
Langia gas discovery. The license requires the participants to
reprocess seismic and other data in the first year of the license
at a cost of US$100,000 and in the second year of the license to
spend US$100,000 on an area review and an analysis of gas
development in a "Kamu" type gas discovery. If work proceeds in
the license area, 50 km of seismic work are required in the third
year of the license and drilling of an exploration well is required
in the fourth year of the license.
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At September 30, 1997, the Registrant was examining existing
data before designing an exploration program.
Australia
Offshore Petroleum Exploration Permit Ashmore Cartier
AC/P19, Timor Sea (65.0%)
A participating interest of 65.0% was acquired by the
Registrant in AC/P19 in May 1997. The other participant is
Mosaic Oil NL (35.0%). The Registrant is the operator.
The permit comprises some 364,500 acres (570 square miles) and
encompasses the Cartier Trough and parts of the Ashmore Platform.
The permit has a term of six years. In the first three years of
the permit, the participants are required to carry out a program of
seismic reprocessing and acquisition, including the collection of
400 km of seismic data, with an estimated cost of AUS$900,000. At
September 30, 1997, the Registrant was planning the initial
exploration program.
Offshore Gippsland Basin, Bass Strait Permit VIC/P-39
(33.33%)
A participating interest of 33.33% was acquired by the
Registrant in VIC/P-39 in June 1997. The other participants are
Mosaic Oil NL (33.33%) and Moondance Energy Pty. Ltd (33.33%).
Mosaic Oil NL is the operator.
The permit comprises some 541,250 acres (845 square miles).
The permit has a term of six years. The permit provides for
certain minimum work requirements. In the first year, the
participants must reprocess certain seismic data. In the second
year, a 500 km seismic survey must be completed. In the third
year, an exploration well must be drilled. The work requirements
for the balance of the permit are not mandatory. The estimated
cost for the first three years is AUS$7,500,000. Further seismic
interpretation, seismic data collection and drilling is
prescribed.
Offshore Exploration Permit WA-199-P, Western Australia
(5.0%)
Pursuant to an agreement dated September 15, 1997 with Boral
Energy Resources Limited, a participating interest of five percent
is to be acquired by the Registrant in WA-199-P in consideration
that the Registrant pay the lesser of ten percent of the dry hole
costs of drilling the Kittiwake-1 well or AUS$850,000 (US$636,000).
The other participants are Boral Energy Resources Limited
(24.869%), which is the operator, Petroz NL (11.392%), TAP Oil NL
(10.0%), Asisun Pty. Ltd. (10.027%) and Santos (BOL) Pty Ltd.
(38.712%)
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The permit requires the participants to complete geological
and geophysical studies with an estimated cost of AUS$100,000
(US$75,000) by December 31, 1997 and to drill two exploration wells
by December 31, 1998 with an estimated cost of AUS$12,700,000
(US$9,500,000).
China
China-Joint Study Agreement of March 18, 1996 (50%)
A Joint Technical Study Agreement of March 18, 1996 between
China National Oil and Gas Exploration and Development Corporation
and the Registrant and Moondance Energy Limited provides for the
preparation of a comprehensive study report of the Nanling and
Wuwei Basins, Anhui Province, China. The area involved is about
2,500,000 acres (3,906 square miles). Operatorship is vested in
the person of the chief executive officer of the Registrant. The
Registrant and Moondance Energy Limited are required to bear all
costs. A Geophysical Study Agreement or a Production Sharing
Contract may be negotiated before March 1998.
At September 30, 1997 the Registrant was reprocessing about
600 miles of seismic data in its evaluation of the basins.
Conceptual planning and costing of exploration wells on the
Hongzhuang Prospect in the Nanling Basin and on the Longtangwon
Prospect in the Wuwei Basin and an assessment of the cost of
additional seismic work were being completed and the negotiation of
a Production Sharing Agreement China National Oil and Gas
Exploration and Development Corporation was underway.
PLAN OF OPERATIONS
The plan of operations for the remainder of fiscal 1997 and
the first nine months of fiscal 1998 is as follows:
New Zealand, East Coast Basin, North Island
Petroleum Exploration Permit PEP 38312 (10.5%)
The Registrant intends to collect, process and interpret
seismic data at an estimated cost of US$285,000. The
Registrant's portion of the budgeted cost is US$30,000.
Petroleum Exploration Permit PEP 38328 (40.0%)
The Registrant intends to continue to collect, process and
interpret seismic data at an estimated cost of US$600,000. The
Registrant's portion of the budgeted cost is US$240,000.
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Petroleum Exploration Permit PEP 38330 (34%)
The Registrant intends to continue the processing and
interpretation of seismic data at an estimated cost of
US$200,000. The Registrant's portion of the budgeted cost is
US$68,000.
Petroleum Prospecting License PPL 38332 (42.5%)
The Registrant intends to continue the collection, processing
and interpretation of seismic data at an estimated cost of
US$250,000. The Registrant's portion of the budgeted cost is
US$106,000.
The Registrant intends to apply for the acquisition of further
petroleum exploration rights in the East Coast Basin, New Zealand,
covering a renewal of the area currently held as PPL 38312.
New Zealand, Onshore Canterbury Basin, South Island
Petroleum Exploration Permit 38256 (35%)
To November 1999, the Registrant intends to locate and analyze
petroleum seeps within the permit area, model existing gravity data
and acquire new gravity data, collect and interpret a minimum of
ten magnetotelluric stations, process existing seismic data and
complete surface geological work at an estimated cost of
US$545,000. The Registrant's portion of the budgeted costs is
US$191,000.
New Zealand, Taranaki Basin, North Island
Petroleum Mining Permit PMP 38148 (5.0%)
The participants intend to workover the producing Ngatoro-1
well in the last quarter of 1997 and to enhance the production
levels in the other producing wells. After this, a development
well is planned to be drilled in the Ngatoro-2 pool and an
exploration well is planned to be drilled to test an undrilled
structure in the PMP 38148 area. The estimated cost of the
workover program is US$380,000 and of the drilling of the two wells
is US$2,067,000. The Registrant's portion of the budgeted cost
is US$122,000.
Petroleum Prospecting License 38706 (7.75%)
The participants propose to drill either one or two
exploration wells at an estimated cost of US$3,000,000. The
locations of the wells have not been finalized. The Registrant's
portion of the budgeted cost is US$233,000.
15
Petroleum Exploration Permit PEP 38716 (24.8%)
On PEP 38716, the participants intend to drill, and if
successful complete, the Crown-1 well and complete geological
studies at an estimated cost of US$4,000,000. The Registrant's
portion of the budgeted cost is US$684,000.
Petroleum Exploration Permit PEP 38720 (50.0%)
On PEP 38720, the participants intend to drill an exploration
well to test the Mount Messenger Formation at an estimated cost
of US$1,000,000. The Registrant's portion of the budgeted cost is
US$500,000.
Petroleum Exploration Permit PEP 38723 (40%)
Before January 31, 1999 the participants intend to carry out
the first phase of the required work at an estimated cost of
US$75,000 and, if results warrant, proceed to the second stage of
the work program at an estimated cost of US$420,000. The
Registrant's portion of budgeted costs is US$198,000.
Papua New Guinea
Petroleum Prospecting License PPL 192 (40.0%)
The participants intend to carry out a geological work
program, license administration and a seismic data collection,
processing and interpretation program at an estimated cost of
US$1,600,000. The Registrant's portion of the budgeted cost is
US$640,000.
The Registrant is in the process of applying for further
interests in Papua New Guinea.
Australia
Offshore Petroleum Exploration Permit Ashmore Cartier
AC/P19, Timor Sea (65.0%)
The participants intend to carry out a geological program and
a seismic collection, processing and interpretation program at an
estimated cost of US$600,000. The Registrant's portion of the
budgeted cost is US$390,000.
The Registrant is in the process of applying for further
offshore interests in the Timor Sea.
16
Offshore Gippsland Basin, Bass Strait Permit VIC/P-39
(33.33%)
The participants intend to carry out a program of seismic
collection, processing and interpretation at an estimated cost of
US$600,000. The Registrant's portion of the budgeted cost is
US$200,000.
Offshore Exploration Permit WA-199-P, Western Australia
(5.0%)
The participants intend to drill an exploration well in the
first quarter of 1998 at an estimated cost of US$6,360,000. The
Registrant's portion of the budgeted costs is US$636,000 to earn
its five percent interest in the permit. After earning its
interest, the Registrant will, if it continues to participate, pay
five percent of the expenses incurred by the participants. A
second exploration well may be drilled in the last quarter of
1998.
China
China-Joint Study Agreement of March 18, 1996 (50%)
The Registrant and Minora Energy (New Zealand) Ltd. are
nearing the completion of the study of existing seismic data and
the preparation of the report on the Nanling and Wuwei basins. The
Registrant is in the process of negotiating a Production Sharing
Contract with China National Oil and Gas Exploration and
Development Corporation and, if successful, the participants intend
to carry out further seismic work in the first half of 1998. Along
with the costs of administration, the estimated costs are
US$1,105,000 of which the Registrant's portion is US$553,000.
If warranted, the participants intend to drill two exploration
wells in the first half of 1999.
ACQUISITION, EXPLORATION AND DEVELOPMENT EXPENDITURES
The Registrant has incurred expenditures of $1,610,539 to
December 31, 1996 and $1,577,211 in the first nine months of 1997
in the acquisition, exploration and development of petroleum
properties.
RISK FACTORS
The common shares of the Registrant must be considered a
speculative investment due to a number of factors. The purchase of
the common shares involves a number of significant risk factors.
Purchasers of common shares should consider the following:
17
1. No History of Operations and Reliance on Expertise of
Certain Persons. The Registrant has no history of operations and
is dependent on the management by its president and, in the
acquisition, exploration and development of petroleum properties,
and on the advice of consulting geologists retained by the
Registrant from time to time. The current president of the
Registrant is experienced in the acquisition, exploration and
development of petroleum properties in New Zealand and other Asian
countries, particularly China, Papua New Guinea and Australia.
Should the current president leave the Registrant, the Registrant
may have difficulty in finding a person of comparable education and
experience to manage the business of the Registrant.
2. Limited Financial Resources. The Registrant has limited
financial resources and, if the business is not profitable, may not
be able to raise sufficient funds to sustain, continue or expand
its business. The Registrant currently has limited revenues and
relies principally on the issuance of common shares to raise funds
to finance the business of the Registrant. There is no assurance
that market conditions will continue to permit the Registrant to
raise funds if required.
3. Competition with Other Companies. Other companies with
greater financial resources or expertise are in competition with
the Registrant. The Registrant must compete with such companies in
bidding for the acquisition of petroleum interests from various
state authorities, in purchasing or leasing equipment necessary to
explore for, develop and produce hydrocarbons and in obtaining the
services of personnel in the exploration for, and development and
production of, hydrocarbons. While the Registrant has acquired
various rights to explore, there is no assurance that personnel and
equipment will be available to carry out the programs planned by
the Registrant.
4. Failure to Locate Commercial Quantities of Hydrocarbons
and Geological Risks. There is no assurance that commercial
quantities of hydrocarbons will be discovered and prices for
hydrocarbons may vary, rendering any deposit discovered uneconomic.
In addition, even if hydrocarbons are discovered, the costs of
extraction and delivering the hydrocarbons to market may render any
deposit found uneconomic. Geological conditions are variable and
unpredictable. Even if production is commenced from a well, the
production will inevitably decline and may be affected or
terminated by changes in geological conditions that cannot be
foreseen or remedied by the Registrant.
5. Governmental Laws and Local Conditions. Claims of
aboriginal peoples may adversely affect the rights or operations of
the Registrant and there is no assurance that governmental
regulation will not vary, including regulations relating to
prices, royalties, allowable production, environmental matters,
18
import and export of hydrocarbons and protection of water resources
and agricultural lands. The Registrant is subject to numerous
foreign governmental regulations that relate directly and
indirectly to its operations including title to the petroleum
interests acquired by the Registrant, production, marketing and
sale of hydrocarbons, taxation, environmental matters, restriction
on the withdrawal of capital from a country in which the Registrant
is operating and other factors. There is no assurance that the
laws relating to the ownership of petroleum interests and the
operation of the business of the Registrant in the jurisdictions in
which it currently operates will not change in a manner that may
materially and adversely affect the business of the Registrant. In
particular, the Registrant is of the view that the laws of China
and to a lesser extent those of Papua New Guinea relating to the
business of the Registrant may be unable to be determined or may
change with little or no notice or the Registrant may be subject to
unofficial or local policies that materially and adversely affect
the business of the Registrant. There is, however, no assurance
that the laws of any jurisdiction in which the Registrant carries
on business may not change in a manner that materially and
adversely affects the business of the Registrant.
6. Environmental Risks. The Registrant is subject to laws
and regulations that control the discharge of materials into the
environment, require removal and cleanup in certain circumstances,
require the proper handling and disposal of waste materials or
otherwise relate to the protection of the environment. In
operating and owning petroleum interests, the Registrant may be
liable for damages and the costs of removing hydrocarbon spills for
which it is held responsible. Laws relating to the protection of
the environment have in many jurisdictions become more stringent in
recent years and may, in certain circumstances, impose strict
liability, rendering the Registrant liable for environmental damage
without regard to negligence of fault on the part of the
Registrant. Such laws and regulations may expose the Registrant to
liability for the conduct of, or conditions caused by, others or
for acts of the Registrant that were in compliance with all
applicable law at the time such acts were performed. The
application of these requirements or the adoption of new
requirements could have a material adverse effect on the business
of the Registrant. The Registrant believes that it has conducted
its business in substantial compliance with all applicable
environmental laws and regulations.
7. Indemnities may be Unenforceable or Uncollectible. The
operating agreements with participants in a property provide for
the indemnification of the Registrant as operator. There is no
assurance that such indemnification will be enforceable or that a
participant will be financially able in all circumstances to
19
comply with its indemnification obligations, or that the Registrant
will be able to obtain such indemnification agreements in the future.
8. Possible Lack of or Inadequacy of Insurance. The
Registrant maintains insurance against certain public liability,
operational and environmental risks, but there is no assurance that
an event causing loss will be covered by such insurance, that such
insurance will continue to be available to, or carried by, the
Registrant or, if available and carried, that such insurance will
be adequate to cover the Registrant's liability.
9. No Assurance of Earnings or Dividends and Taxation of
Dividends. The Registrant has no history of earnings and there is
no assurance that the business of the Company will be profitable
and, even if the business of the Registrant is profitable, there is
no assurance the board of directors will declare dividends on
common shares. The register of members of the Registrant discloses
that the majority of the shares of the Registrant are held of
record by persons resident in the United States of America. If the
Registrant should declare a dividend, a withholding tax of five
percent is payable in Canada on payment of a dividend to a
corporate resident of the United States of America holding more
than ten percent of the shares of the Registrant and 15% to all
other residents of the United States.
10. Marketing of Petroleum Products. The availability of
products sold, or to be sold, by the Registrant may be restricted
or rendered unavailable due to factors beyond the control of the
Registrant, such as change in laws in the jurisdictions in which
the properties of the Registrant are located, changes in the source
of supply in foreign countries, prohibition on use due to testing
and licensing requirements and in certain areas of the world civil
disorder or governmental confiscation without compensation.
11. Activities of Management. The management of the
Registrant and the growth of the Registrant's business depends on
certain key individuals who may not be easily replaced if they
should leave the Registrant; and persons in management have other
business interests which may result in them devoting, from time to
time, some of their time to such other interests.
12. Inadequacy of Public Market. There is no assurance
that the public market for the common shares of the Registrant will be
maintained or that the holder of common shares will be able in
all circumstances to sell such shares in the quantity and at the
price desired by such holder.
20
13. Restrictions in Applicable Securities Laws. Applicable
securities laws may restrict the transfer of common shares and if
an exemption is not available to a holder wishing to sell, the
shares may not be transferred.
14. Dilution. The Registrant may issue more common shares at
prices determined by the board of directors, possibly resulting in
dilution of the value of common shares, and, given there is no
preemptive right to purchase common shares, if a member does not
purchase additional common shares, the percentage share ownership
of the member in the Registrant will be reduced.
15. Loss of Investment. An investment in common shares of
the Registrant should only be made by persons who can afford a
complete loss of their investment and there is no assurance that
the common shares of the Registrant will increase in value from the
amount at which a member acquired common shares of the Registrant.
16. Risk Inherent in Exploration. Most of the properties of
the Registrant are at the exploration stage and, except for
petroleum mining permit 38148, without known, commercial reserves
of oil or gas. Oil and gas exploration and development involves a
high degree of risk and few properties which are explored are
ultimately developed into producing and profitable properties.
17. Dealings With Associated Companies. The Registrant is
associated through common directors, common officers, a common
promoter and common shareholdings with four other companies. Mr.
Alex Guidi is the promoter, a member of the board of directors and
the chairman of the Registrant. Mr. Guidi is also the promoter of
Trans-Orient Petroleum Ltd. ("TOP"), Trans New Zealand Oil Company
("TNZ") and Gondwana Energy, Ltd. (Gondwana"). Dr. David Bennett
is the president, chief executive officer and a member of the board
of directors of the Registrant, TOP and Durum. Mr. John Holland is
a director of the Registrant, a director and officer of TNZ and a
director and officer of Gondwana. Messrs. Bernhard Zinkhofer and
Peter McKeown are members of the board of directors of TOP and
Durum. At September 30, 1997 Mr. Guidi beneficially held 5,904,076
common shares of the Registrant of a total outstanding of
28,262,328 common shares (20.89%) and held rights to acquire an
additional 994,000 common shares at various prices. At October 15,
1997 Mr. Guidi beneficially held 2,463,700 common shares of TOP of
a total outstanding of 9,063,520 common shares (27.18%) and held
warrants entitling him to purchase an additional 1,557,000 common
shares. At September 30, 1997 Mr. Guidi beneficially held
1,000,000 common shares of Durum of a total outstanding of
9,541,908 common shares (10.48%). At September 1997, Mr. Guidi
held 4,938,000 common shares of TNZ of a total outstanding of
9,000,000 common shares (54.87%). The percentage participation of
the Registrant and associated companies in a property is determined by the
21
boards of directors of each company in accordance with applicable
law. Persons who are not willing to rely on the exercise of
judgment by the respective boards of directors in determining the
participation in properties should not consider an investment in
the shares of the Registrant or associated companies.
18. Defeasance of Title. The possibility exists that title
to one or more properties of the Registrant may be lost due to an
omission in the claim of title. The Registrant does not maintain
title insurance.
ITEM 2. FINANCIAL INFORMATION
Forward-Looking Statements
This Form 10, particularly the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" contains certain forward-looking statements within the
meaning of section 27A of the Securities Act of 1933, as amended
and section 21E of the Securities Exchange Act of 1934, as amended
that are not historical facts concerning, among other things,
market conditions, the demand for petroleum products, future
acquisitions, future financings, future capital expenditures and
future results of operations. Actual results may differ materially
from those included in the forward-looking statements, and no
assurance can be given that the Registrant's expectations will be
realized or achieved. Important factors and risks that could cause
actual results to differ from those referred to in forward-looking
statements are discussed under the heading Item 1. Business-Risk
Factors.
Introduction
The following is a discussion of the Registrant's financial
condition, results of operations, financial resources and working
capital. This discussion and analysis should be read in
conjunction with the Registrant's consolidated financial statements
contained in this Form 10 under Item 13.
Overview
The Registrant was not active in the acquisition, exploration
and development of petroleum properties in 1995. The interests
currently held by the Registrant began to be acquired in 1996. The
Registrant has directed its efforts to the acquisition of petroleum
interests of substantial acreage in under-explored areas that are
geologically favorable for the discovery of the hydrocarbons. The
risk inherent in the exploration for the discovery of hydrocarbons
has been reduced by the participation of other companies as working
interest participants. The Registrant has also established itself
22
as the operator of programs on certain of the petroleum interests
held by the Registrant in order to better control and manage the
process of exploration and development of the petroleum interests.
Acquisition of Petroleum Interests, Exploration, Development and
Production
The acquisition, exploration and development of, and
production from, petroleum interests between January 1, 1996 and
September 30, 1997 is described under Item 1. Business.
Selected Financial Information
The following constitutes selected financial data for the
Registrant prepared in accordance with Canadian generally accepted
accounting principles for the last four completed financial years
and for the nine month period ended September 30, 1997. The
information, expressed in Canadian dollars unless otherwise
indicated, must be read in conjunction with the more detailed
financial information contained in the accompanying audited and
management financial statements.
December 31 January 31
1996 1995 1995 1994 1993
--------------------- -----------------------------
Current Assets $13,154,012 $1,397,602 $ 809,435 $ 809,207 $ 11,649
Petroleum and Natural
Gas Properties 1,517,758 83,178 14,581 nil nil
Property and
Equipment 47,572 8,411 nil nil nil
Incorporation
Costs nil 971 971 971 971
Total Assets 14,719,342 1,490,162 824,987 810,178 12,620
Share Capital 19,275,707 5,861,540 5,087,160 4,936,024 4,126,024
Deficit (4,675,656) (4,462,173) (4,280,531)(4,208,889) (4,156,158)
Gross Revenue 580,715 53,352 36,407 2,985 2,496
Net Loss (213,483) (181,642) (71,642) (52,731) (128,840)
Net Loss
per Share (0.01) (0.01) (0.01) (0.00) (0.01)
September 30
1997 1996
-------------------------------
Current Assets $14,787,738 $13,966,611
Petroleum and Natural
Gas Properties 2,757,565 620,116
Property and
Equipment 190,174 43,188
Incorporation Costs nil 971
Total Assets 17,735,477 14,630,886
Share Capital 22,819,985 19,054,140
Deficit (5,108,470) (4,561,541)
Gross Revenue 807,385 247,604
Net Loss (432,814) (99,368)
Net Loss per Share (0.02) (0.00)
23
UNDER U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
September 30 December 31
1997 1996 1996 1995
------------------- ----------------------
Current Assets $14,787,738 $13,966,611 $13,154,012 $1,397,602
Petroleum and Natural
Gas Properties 2,757,565 620,116 1,517,758 83,178
Property and
Equipment 190,174 43,188 47,572 8,411
Incorporation
Costs Nil 971 Nil 971
Total Assets 17,735,477 14,630,886 14,719,342 1,490,162
Share Capital 23,923,681 19,619,580 20,280,380 6,168,290
Deficit (6,212,166) (5,126,981) (5,680,329) (4,768,923)
Gross Revenue 807,385 247,604 580,715 53,352
Net Loss (531,837) (358,058) (911,406) (244,642)
Net Loss
per Share (0.02) (0.02) (0.04) (0.02)
Certain transactions have occurred during the periods which
may cause the data between periods to be not comparable. For
fiscal 1996, refer to Item 1. Business - Development of Business,
for a description of the acquisition of the interest in the Ngatoro
Oil Field.
Exchange Rates
On September 29, 1997, the buying rate for Canadian dollars
was US$1.00: CDN $l.3837. The following table sets out the buying
rate for Canadian dollars for the period indicated. Rates of
exchange are obtained from the Bank of Canada and believed by the
Registrant to approximate closely the rates certified for customs
purposes by the Federal Reserve Bank in New York.
1992 1993 1994 1995 1996
Year End 1.2709 1.3217 1.4018 1.3640 1.3706
Average 1.2083 1.2898 1.3659 1.3726 1.3636
High [1] 1.2887 1.3446 1.4065 1.4243 1.3852
Low [1] 1.1420 1.2425 1.3109 1.3303 1.3290
[1] The high and low buying rate figures are selected from daily
high and low figures.
The following is a summary statement of the material
differences between Canadian and U.S. generally accepted accounting
principles relevant in the preparation of the Registrant's
financial statements:
1. Under U.S. GAAP, compensation expense is recognized when
the market value of stock options as at the grant date exceeds the
exercise price of the stock options. Under Canadian GAAP, no such
expense is recognized;
24
2. Under U.S. GAAP, compensation expense is also recognized
when shares held in escrow are released and the market value at the
escrow release date exceeds the price of the escrow shares. Under
Canadian GAAP, no such expense is recognized;
3. Under U.S. GAAP, escrow shares are excluded from the
weighted average number of shares outstanding used in the
calculation of loss per share. Under Canadian GAAP, escrow shares
are included in the weighted average number of shares outstanding;
and
4. Under U.S. GAAP, the ceiling test limits capitalized
costs for petroleum and natural gas properties by the aggregate of
the estimated present value, discounted by 10%, of future net
revenues from proved reserves, based on current economic and
operating conditions, plus the lower of cost or fair market value
of unproven properties. Under Canadian GAAP, the ceiling test also
limits capitalized costs for petroleum and natural gas properties
but the aggregate of future net revenues from proved reserves are
not discounted.
For the effects of the above differences between Canadian and
U.S. GAAP, refer to note 13 of the December 31, 1996 audited
financial statements of the Registrant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Registrant is in the exploration and evaluation stage on
its oil and gas properties and hence has not yet achieved
profitability or break even cash flow. The Registrant has
experienced losses in each fiscal period reported on. Its main
source of capital currently is the issuance of equity securities,
which has a dilative effect on the Registrant's shareholders.
Total losses incurred from incorporation to September 30, 1997 were
$5,108,470. The level of future operations may be limited by the
availability of capital resources, the sources of which are not
predictable. The results of operations should be largely measured
by the success of the extent and quality of oil and gas discovered
as a result of exploration programs. The sales value of any oil
and gas discovered by the Registrant will be largely dependent on
factors beyond the Registrant's control such as the market value of
the hydrocarbons produced.
The business of the Registrant was inactive during the 1995
fiscal year. The Registrant commenced the operation of its current
business in 1996. The efforts of management have been directed
towards the acquisition of petroleum interests and the commencement
of exploration programs on the interests acquired. The Registrant
is also the operator on certain of the interests acquired and to
that end has established an exploration office in
25
Wellington, New Zealand. The acquisitions made by the Registrant
between January 1, 1996 and September 30, 1997 are described under
Item 1. Discussion of Development of Business.
Operating Revenue
Effective September 1, 1996 the Registrant bought the
outstanding shares of Minora Energy (New Zealand) Limited for
AUS$575,000 (CDN$478,755, US$348,790). The name of the company was
changed to Ngatoro Energy Limited. Ngatoro Energy Limited owns a
five percent participating interest and revenue interest in
petroleum mining permit PMP 38148, which has four producing oil
wells and two shut-in gas wells. In the year ended December 31,
1996 the Registrant received $222,501 from hydrocarbon sales and in
the nine months ended September 30, 1997, the Registrant received
revenues of $500,267. Production has remained relatively
constant.
Costs and Expenses
In the nine months ended September 30, 1997 the Registrant
incurred expenses in the acquisition, exploration and development
of petroleum interests of $1,577,211. The amount incurred in the
acquisition, exploration and development of petroleum interests for
the nine months ended September 30, 1996 was $536,938 and for the
year ended December 31, 1996 was $1,610,539. The increase
represents the acquisition of additional petroleum interests by the
Registrant and development and implementation exploration
programs.
Amortization and depletion expense for the nine months ended
September 30, 1997 was $365,252 and for the nine months ended
September 30, 1996 was $3,922. Depletion and amortization expense
for the year ended December 31, 1996 was $133,879. The increase
resulted from the acquisition of additional petroleum interests
between January 1, 1996 and September 30, 1997.
General and administrative expenses for the nine months ended
September 30, 1997 were $678,734 and for the nine months ended
September 30, 1996 were $343,050. General and administrative
expenses for the year ended December 31, 1996 were $556,716. The
increase resulted from services required to be provided in
connection with the acquisition of additional petroleum interests
between January 1, 1996 and September 30, 1997, the establishment
of an exploration office in Wellington, New Zealand and the
increased level of exploration activity of the Registrant.
26
Interest Expense
The Registrant finances its business primarily from the
issuance of common shares and secondarily from the receipt of
petroleum revenues from its interest in the Ngatoro oil field, New
Zealand. The Registrant has not effected any borrowing and has
consequently not incurred any interest expense.
Interest Income
Interest income for the nine months ended September 30, 1997
was $307,118 and for the nine months ended September 30, 1996 was
$247,604. Interest income for the year ended December 31, 1996 was
$358,214. The increase was due to the receipt and deposit between
January 1, 1996 and September 30, 1997 of $16,958,445 from the
issuance of common shares.
Liquidity
The Registrant has maintained an appropriate liquidity level
to fund its expenditure programs in the past and has no reason to
conclude that this will not continue for fiscal 1997. The
Registrant is satisfied with its ability to access capital markets
through private placements, public offerings, and convertible
securities in order to preserve liquidity levels. The Registrant
will utilize joint venture arrangements to reduce its exposure on
exploration and development programs.
As of December 31, 1996 the Registrant had $13,034,721 in
working capital as compared with $1,306,807 as of December 31,
1995. As of September 30, 1997 the Registrant had working capital
of $14,763,776 compared with working capital at September 30, 1996
of $13,828,324.
During the fiscal year ended December 31, 1996, the Registrant
completed a Canadian private placement of units distributed to
British Columbia residents raising $3,030,000 through the issuance
of 1,000,000 units at a price of $3.03 per unit, each unit
consisting of one common share and one non-transferable share
purchase warrant to purchase an additional share before May 27,
1997 at $3.03 per share and between May 28, 1997 and May 27, 1998
at $3.485 per share. The Registrant issued additional common
shares to directors, senior officers and employees pursuant to the
exercise of incentive stock options for gross proceeds of
$10,384,167 (1,725,000 shares for $2.167 per share, 1,002,000
shares for $3.333 per share, 612,000 shares for $5.00 per share,
40,000 shares for $5.33 per share and 40,000 shares for $0.837
per share).
27
During the fiscal period ended December 31, 1995, the
Registrant issued 7,494,000 shares for $0.103 per share for gross
proceeds of $774,380 pursuant to the exercise of share purchase
warrants. No incentive options were exercised during this
period.
During the fiscal year ended January 31, 1995, the Registrant
issued 1,406,250 shares for $0.003 per share held in escrow. The
Registrant issued 1,506,000 shares at a price of $0.103 per share
for gross proceeds of $155,620 pursuant to the exercise of share
purchase warrants. No incentive options were exercised during
this period.
Capital Resources
The Registrant's capital resources are comprised primarily
of private investors, including members of management, who are
either existing contacts of the Registrant's management or who come to
the attention of the Registrant through brokers, financial
institutions and other intermediaries. The Registrant's management is of the
view that conventional banking is unavailable to resource companies
which are in the exploration stage. The Registrant's access to
capital is always dependent upon general financial market
conditions, especially those which pertain to venture capital
situations such as oil and gas exploration companies. The
Registrant's capital resources have not changed in 1996 nor are
they anticipated to change materially in 1997.
It is management's intention to acquire, explore and develop
oil and gas properties in the Asia Pacific region. Material
capital commitments to September 30, 1998 are described in Item
1. Business - Plan of Operations. These commitments total
US$3,926,700 which the Registrant has on deposit.
The Registrant has no other anticipated capital expenditures
of a material amount. However, the Registrant intends to acquire
additional petroleum interests which may give rise to further
capital expenditures.
The Registrant has no agreements with management, investors,
shareholders or anyone else respecting additional financing at this
time. Because of the nature of the Registrant's business, there
are no trends in the nature of its capital resources which could be
considered predictable. To date, the Registrant's capital
resources have consisted solely of the issuance of common shares
pursuant to either public distributions, private placements or the
exercise of convertible securities.
28
Results of Operations
The Registrant is an exploration company. The Registrant's
primary focus as of September 30, 1997 is the investigation and
acquisition of oil and gas properties. The Registrant's policy is
to acquire interests and where possible, minimize its risk exposure
by farming out or joint venturing these interests to other industry
participants.
The Registrant's current property focus is on the acquisition
and exploration of properties primarily in the Asia Pacific region
with the objective of establishing a solid cash flow base and
participating in high potential exploration blocks in under
explored countries with attractive fiscal regimes.
Revenues for the year ended December 31, 1996 were $580,715
compared with $53,352 for the period ended December 31, 1995. The
Registrant's expenses for the year ended December 31, 1996 were
$794,198 resulting in a per share book loss of $0.01 compared with
$234,994 resulting in a per share book loss of $0.01 for the period
ended December 31, 1995.
Effective September 1, 1996 the Registrant bought the
outstanding shares of Minora Energy (New Zealand) Limited for
AUS$575,000 (CDN$478,755, US$348,790). The name of the company was
changed to Ngatoro Energy Limited. This acquisition provided the
Registrant with oil and gas revenues of $222,501 for the year ended
December 31, 1996 and $500,267 for the nine months ended September
30, 1997. During the year ended December 31, 1996, interest income
increased to $358,214 compared to $53,352 for the period ended
December 31, 1995. This is due to the increase in cash of
$13,414,167 provided by the issuance of common shares through
private placements and exercise of stock options during the year
ended December 31, 1996.
Revenues for the period ended December 31, 1995 were
approximately $53,000 compared with $36,000 for the year ended
January 31, 1995. The Registrant's expenses for the period ended
December 31, 1995 were approximately $235,000 resulting in a per
share book loss of $0.01 compared with $108,000 resulting in a per
share book loss of $0.01 for the year ended January 31, 1995.
Revenues for the year ended January 31, 1995 were
approximately $36,000 compared with $3,000 for the year ended
January 31, 1994. The Registrant's expenses for the year ended
January 31, 1995 were approximately $108,000 resulting in a per
share book loss of $0.01 compared with $81,000 resulting in a per
share book loss of $0.00 for the year ended January 31, 1994.
29
ITEM 3. PROPERTIES
The following is a brief description of the principal
properties held by the Registrant. The terms and conditions of the
permits and licenses under which the properties are held are
discussed in Item 1. Business - Discussion of Development of
Business.
ALTHOUGH THE REGISTRANT IS CURRENTLY RECEIVING SOME PRODUCTION
REVENUE, THE REGISTRANT DOES NOT REPRESENT THAT IT HOLDS MATERIAL
INTERESTS IN PROVEN PROPERTIES AS ALMOST ALL OF ITS PROPERTIES ARE
IN THE EXPLORATION STAGE. THE REGISTRANT SHOULD BE CONSIDERED AN
EXPLORATION AND DEVELOPMENT STAGE OIL AND GAS COMPANY.
For definitions of technical terms in the following
description of properties, see the Glossary of Terms.
GENERAL
The formation of geological conditions for the generation,
entrapment and location of hydrocarbons depends on a number of
unpredictable factors. First, any system of sedimentary strata
must contain a source of hydrocarbons. Secondly, the source rocks
must have been buried in order for conditions favorable to the
production of hydrocarbons to prevail and the hydrocarbons must
have been expelled from the source formations. With expulsion, the
hydrocarbons will migrate and strata into which the hydrocarbons
migrate must be conducive to both the collection of the
hydrocarbons in the strata and the sealing of the hydrocarbons
within the strata in which they collect. Geological conditions are
extremely varied and unpredictable. See Item 1. Business - Risk
Factors.
New Zealand, East Coast Basin, North Island
Regional Geology
Geologically, the East Coast Basin area in north-east New
Zealand lies in the forearc of an active convergent plate margin
between the subducting oceanic Pacific plate to the east and the
Indian-Australian plate of continental composition to the west.
The rocks exposed on land are characterized by thick marine clastic
sequences ranging in age from early Cretaceous to the Quaternary,
with complex stratigraphy and structure. The stratigraphy may be
simplified into five parts. The pre-Miocene geology can be divided
into autochthonous and allochthonous sequences. Both sequences
have some units in common, but there are material differences. The
basement rocks are Early to Mid-Cretaceous. Overlying the basement
rocks is an allochthonous unit that was emplaced by a foreland
style thrust belt in early Miocene times. This emplacement
occurred at the same time as a
30
change in sedimentation from a slow, clastic-starved environment
(Late Cretaceous to Paleocene) to a rapid clastic deposition
environment (Miocene to Quaternary). Overlying this unit is
about 19,000 feet of Miocene strata that was laid down in a moderate to
deep marine environment. The sequence is interspersed with
turbiditic sandstone and mudstone sections of variable thickness of
up to 100 feet. The structural geology in the area is complex,
varying from large, open synclines and tight anticlines in the
north to low angle normal faults of several hundreds of feet
displacement in the west and disconformities and faulting in the
south. From Pliocene times, there was rapid uplift in the area,
which prevented further marine deposition, and rapid erosion began
with normal faulting occurring throughout the area.
Currently, there is no production from the East Coast Basin
except for small scale local use of gas seeps.
Petroleum Exploration Permit PEP 38328 (40.0%)
Most of PEP 38328 is flat or gentle hill country, with some
hilly areas to the south-east. The main population centers are the
twin cities of Hastings and Napier, which has a port, with a
combined population of about 110,000. These are the largest cities
on the east coast of the North Island and service a largely rural
area. Current gas consumption in the area is about 2.5 billion
cubic feet. Gas is supplied by an eight inch pipeline from the
Taranaki area on the west coast of the North Island. This pipeline
passes through the center of the permit area.
PEP 38328 has been very lightly explored. Only three wells
have been drilled in the permit area and limited seismic data has
been collected. A well in the south of the permit area encountered
Pliocene reservoir limestones, but these were water saturated and
the well was abandoned. Another well near Napier encountered gas
but was not tested. Later, gas was collected for local use. A
third well near Napier encountered Upper Pliocene turbidite
sandstones which contained a gassy brine. Upper Miocene turbidite
sandstones were also encountered below the Upper Pliocene. Other
horizons also has indications that they were gas bearing.
The Kereru Prospect was defined in 1988 to 1991, but much of
the permit has not been explored with seismic techniques. One of
the objects of the participants is to define additional structures
in the permit area. The East Coast Basin has many oil seeps, gas
seeps and indications of oil in outcrop but not enough is known
about sub-surface structures to determine likely reservoir
locations. The best source formations in the permit area are
considered to be the Upper Cretaceous to Paleocene Whangai
Formation and the Paleocene Waipawa black shale
31
formation. The latter is usually about 100 feet thick and the
former about 300 feet thick. These formations are considered to be
likely oil bearing formations. Local gas seeps indicate that other
formations may be targets for the location of gas.
Surface geology and information from the wells drilled to date
indicate the Pliocene and Pleistocene limestones, which occur at
several stratigraphic levels and outcrop throughout the permit
area, have the best potential to be reservoir formations.
Thicknesses vary from 15 to several hundred feet. Other potential
reservoir formations include Pliocene and Pleistocene turbidite
sandstones that occur throughout the permit area, and Upper Miocene
turbidite sandstones.
Additional seismic work is required to delineate structures
within the permit area. Finally, regional conditions indicate that
the depth of burial of the source formations for oil and gas is in
excess of 13,000 feet, sufficient for the generation of
hydrocarbons. Seismic data indicates that there are structures
within the permit area which may act as traps for migrating
hydrocarbons.
In the fourth quarter of 1996, the Kereru-l exploration well
was drilled to a depth of 1,938 meters (6,391 feet). Several thin
and separated potential pay reservoir sandstones were encountered,
but the Registrant decided that the results did not justify the
expense of flow testing the well. The well was plugged and
abandoned. In the first half of 1997, a 120 mile seismic survey
costing approximately $1,000,000 was completed. Data was exchanged
with adjacent permit holders and indicated a previously
unidentified structure in the northern part of the permit. At
September 30, 1997 further exploration was to be determined after
processing and interpretation of the seismic data.
Petroleum Exploration Permit PEP 38330 (34%)
PEP 38330 is north of PEP 38328 on the eastern side of
Raukumara Peninsula, the most easterly part of the North Island.
The country covered by PEP 38330 ranges from low alluvium-filled
valleys to hilly incised country. The area is lightly populated,
comprised mostly of pastoral farmland increasingly converted to
forestry blocks in recent years. An extensive transportation
system is already in place. Gisborne, with a population of 30,000
serves as a port and service center for the area.
The permit area is very lightly explored. The abundance of
oil and gas seeps in the area indicates that hydrocarbon generation
has occurred, the most likely source rocks being the Whangai
Formation. The formation process will be complex as a result of
the complicated tectonic and burial history. In the permit area,
the Miocene turbiditic sandstones and minor
32
conglomerate and limestone deposits are the likely areas where
reservoirs will be located. There are several promising outcrops
known with some indications of hydrocarbons. Finally, the
presence of mud volcanoes and hot springs in the permit area indicate that
the Miocene-Pliocene mudstone sequences contain stratigraphic
seals capable of containing hydrocarbons.
Historically, there have been six exploration wells drilled on
or adjacent to the permit area since 1945. Four of the wells were
drilled before 1972 with very poor seismic control. Two wells
drilled in 1985 and 1986 were supported with 75 miles of seismic
data but in both cases were unsuccessful. The Registrant is
concentrating on the acquisition of seismic data and on surface
geological mapping.
The main exploration targets currently recognized are around
the Waitangi Oil Seeps area in the south of the permit area and the
Matanui Anticline area in the center of the permit area. The
surface expression of the Matanui Anticline covers some 80 square
miles in area and there are few oil or gas seeps along its
boundaries, indicating a possible unbreached structure. The
Registrant is also considering drilling a well alongside the old
Waingaromia-1 well, which produced oil in the 1880's before the rig
burnt down due to ignition of gas escaping from the well. A recent
survey of this old well confirmed that it is still actively leaking
hydrocarbons.
A 15 mile regional seismic line was completed in April 1997,
over the main structural features of the basin, including the
Matanui and Pauariki Anticlines. Processing and interpretation of
this data is underway.
Petroleum Prospecting License PPL 38332 (42.5%)
PEP 38332 covers an area of approximately one million acres in
the East Coast Basin and is located onshore in the southern Hawke
Bay area, North Island, immediately south of PEP 38328.
The country covered by PEP 38332 is a fairly flat alluvial
plain in the center, but more hilly, incised country in the east
and west. Major road and rail links, including the eight-inch
natural gas line to the Hawke Bay area, running across the center
of PEP 38332. There is a good network of minor roads. The area is
predominantly pastoral farmland, with no major population centers.
The area is serviced from Napier and Hastings to the north.
Two wells were drilled in the east of the permit in the early
years of the 20th century, and both recorded oil and gas shows.
Two further wells, in 1969 and 1971, were drilled in the western
area of PEP 38332, but were unsuccessful. These results identify
the area east of the Waewaepa Fault as being the main
33
area of exploration interest in PEP 38332. A number of prominent
oil and gas seeps in the eastern area, and oil source rocks seen in
outcrop, confirm its potential for discovery. Potential reservoirs
are also present in the Miocene sandstones and Pliocene limestones.
Some limited seismic data, acquired in 1970, together with surface
geological mapping identifies potential trapping structures
immediately east of the Waewaepa Fault.
Approximately 15 miles of new seismic data were acquired in
this area of PEP 38332 in May 1997, as an extension of the larger
program in PEP 38328, to the north. Further seismic in 1998 will
be considered after interpretation of this new seismic, together
with reinterpretation of the existing old seismic. Over the next
six months, the Registrant intends to continue the processing and
interpretation of seismic data.
The Registrant intends to apply for the acquisition of further
petroleum exploration rights in the East Coast Basin, New Zealand.
New Zealand, Canterbury Basin, South Island, Petroleum
Exploration Permit PEP 38256 (35%)
The Canterbury Basin is located both onshore and offshore in
the area surrounding Christchurch, on the east coast of the South
Island. The total area of the Canterbury Basin is about twelve
million acres. The sediments in the Canterbury Basin range in age
from Middle Cretaceous to Miocene and have evolved in a manner
similar to the Taranki Basin. There are numerous gas seeps in the
area.
At September 30, 1997 the participants were planning the first
phase of required work in order to determine the geologic structure
of the sedimentary basin. If the interpretation of the geologic
structure indicates the possible existence of hydrocarbons, the
participants will conduct further seismic surveys in order to
determine the location of possible drill targets.
There have been five wells drilled on PEP 38256 since 1914 and
four offshore wells drilled since 1970, two of which were
condensate discoveries, which are relevant in interpreting the
geology of PEP 38256. Generally, the area is lightly explored.
The basement rocks are Cretaceous sediments and volcanics with some
interbedding of coal formations. Overlying the Cretaceous
formations are Paleocene and Eocene terrestrial sediments which
gradually become of marine origin towards the eastern part of the
basin. Overlying these formations are Oligocene limestone and
sandstone formations which are principally marine in origin. The
early Miocene period saw the deposition of marine sandstones and
mudstones with a gradation to nonmarine sediments in the late
34
Miocene period. The Pliocene and Quaternary strata are principally
gravels derived from the formation of the Southern Alps with some
volcanics.
Structures in the area trend from the north east to the south
west. Little is known of the local geologic structure. The
sandstones in the Miocene, Paleocene and late Cretaceous formations
are considered to be potential reservoirs, with lesser emphasis
placed on the Eocene and Oligocene limestones. Interbedded
mudstones would provide seals for the reservoirs. Source
formations are thought to be the upper Cretaceous coal formations
and the Whangai and Waipawa Black Shale formations which are found
elsewhere in the East Coast Basin.
The participants propose to carry out the first phase of the
required work program at an estimated cost of US$110,000. If
warranted, the participants will proceed to the second stage of the
work program at an estimated cost of US$440,000.
REGIONAL GEOLOGY
New Zealand, Taranaki Basin, North Island
The Taranaki Basin is located on the west coast of the North
Island. The sediments in the Taranaki Basin range in age from Late
Cretaceous to the Quaternary and encompass a depth of some 25,000
feet with complex structure and geology. Compression across the
eastern portion of the Basin during the early Miocene period
resulted in a thrusted fold belt up to ten miles wide, which
contains the McKee, Tariki, Ahuroa and Waihapa-Ngaere fields. The
eastern margin of the Basin, where PEP 38716 is located, is lightly
explored when compared with other areas of the Basin.
Petroleum Mining Permit PMP 38148 (5%) and Petroleum
Prospecting License PPL 38706 (7.75%)
PPL 38706 and PMP 38148 are situated onshore in the north
central part of the Taranaki Basin, and cover a total area of
approximately 40,000 acres. The area is immediately to the south
of PEP 38720.
Oil production from the four wells producing from sandstones
of the Mount Messenger Formation at depths of 5,000 feet has
remained steady at 1,400 to 1,500 barrels per day. The
participants intend to workover the producing Ngatoro-1 well and to
enhance the production levels in the other producing wells. After
this, a development well is planned to be drilled in the Ngatoro-2
pool and an exploration well is planned to be drilled to test an
undrilled structure in the PMP 38148 area. The estimated cost of
the workover program is US$380,000 and of the drilling of the two
wells is US$2,067,000. The Registrant's portion of the budgeted
cost is US$122,400.
35
In PPL 38706, the participants are considering drilling two
exploration wells at an estimated cost of US$3,000,000. The
locations of the wells have not been determined. The Registrant's
portion of the budgeted cost is US$232,500.
Petroleum Exploration Permit PEP 38716 (24.8%)
PEP 38716 is situated in the eastern margin of the onshore
Taranaki Basin and covers an area of approximately 67,000 acres.
It is located adjacent to both the Kapuni gas-condensate field,
discovered in 1959, and the Waihapa-Ngaere oil and gas field. The
gathering station for the Waihapa-Ngaere oil and gas field is
located within a few miles of the boundary of PEP 38716. The area
consists of gently rolling hills with rural agriculture being the
main activity.
Exploration of PEP 38716 has to date resulted in the
collection of several hundred miles of seismic data from the area
overlying the Taranaki Fault which formed the eastern margin of the
Basin before Miocene thrusting. Two major plays are currently
recognized as the basis for further exploration.
The Crown Prospect is located in the northern part of PEP
38716. Two wells were drilled to the south of this prospect in
1991 and both were unsuccessful. The main target horizons in the
Crown Prospect are the Tikorangi limestones, with an estimated
depth of 8,000 feet and the Tariki sandstones, with a depth of
10,500 feet. The Crown Prospect is interpreted as a thrust block
anticline, somewhat similar in geological style and size to the
nearby Waihapa oil field.
Deeper reservoir targets are provided by the sandstones of the
Kapuni Group, with a depth of 12,000 to 16,000 feet. This
formation may underlie the Crown Prospect and areas in the southern
part of PEP 38716.
South of the Crown Prospect lies the Oru Prospect which
overlies the Miocene sandstones of the Mount Messenger Formation.
This horizon may contain oil at depths of less than 5,000 feet.
This is considered to be a secondary target within the permit area.
The Waihapa-8 well, drilled on the very edge of the Oru structure,
flow tested oil from the target sandstones at rates in excess of
750 barrels per day.
On PEP 38716, the participants intend to drill, and if
successful complete, the Crown-1 well and complete geological
studies at an estimated cost of US$5,000,000. The Registrant's
portion of the budgeted cost is US$1,240,000.
36
Petroleum Exploration Permit PEP 38720 (50.0%)
PEP 38720 lies in the north central part of the Taranaki
Basin, immediately south-west of the McKee oil field and north-east
of the Ngatoro oil field. The Kaimiro gas field lies to the west
of the permit area. The permit area is underlain by a complete
Tertiary section including the Mount Messenger and Kapuni
Formations which are reservoir objectives.
The Inglewood Fault, a feature which has played a significant
geological role, both in creating traps for oil and gas, as in the
Kaimiro and Ngatoro fields and in providing a conduit for oil and
gas to move into such traps, crosses the northern part of PEP
38720. Movement on this fault system in the geological past has
created a structural trap at Kapuni level (12,000 feet) within PEP
38720, which has been mapped from existing seismic and well
information as covering an area of up to ten square km (2,500
acres). This feature, named the Waitoriki Prospect, will be the
main focus of the ongoing exploration effort.
A significant petroleum seep in a quarry on the permit
boundary, at a location where the Inglewood Fault cuts to ground
surface, demonstrates that oil entrapment at shallower levels can
also occur, in similar manner to the adjacent Ngatoro and Kaimiro
oil fields. This makes the shallower Mount Messenger Formation
(~5,000 feet depth) an exploration target.
On PEP 38720, the participants intend to drill an exploration
well to test the Mount Messenger Formation at an estimated cost of
US$1,000,000. The Registrant's portion of the budgeted cost is
US$500,000.
Petroleum Exploration Permit 38723
PEP 38723 is adjacent to, and was until 1993 part of, PEP
38706 and has similar geology. Exploration of the general area has
been conducted since 1978 and has resulted in the discovery of the
McKee, Tariki, Ahuroa, Kaimiro and Ngatoro fields. The discovery
of the McKee field in 1979 directed exploration towards
investigation of the overthrust area of the eastern Taranaki Basin.
In the general area, the formations which have been the targets of
exploration are the Kapuni Formation, the Mount Messenger Formation
and to a lesser extent the Upper Moki Formation. In 1993, 50% of
PEP 38706 was relinquished and there were no leads recognized in
the area covered by PEP 38723.
PEP 38723 is underlain by Late Cretaceous coal and marine
shale sequences. Above these formations lies the Kapuni Formation
of inter-bedded coal sequences which provide the principal source
of local oil and gas accumulations. Above the Kapuni formation
lies the McKee formation which was formed during the Eocene
period.
37
This formation has a limited potential to be a producing horizon on
PEP 38723 due to its limited distribution, depth and absence of
prospects and leads. During the Oligocene period, there was
erosion followed by sandstone and then limestone deposition. The
Tikorangi limestones increase in thickness towards the eastern
boundary of the permit. In the Miocene period, clastic sediments
were deposited to form the Moki sandstones which are a secondary
reservoir target and to form the Mount Messenger sandstones which
have not been tested on PEP 38723, although they are the producing
horizon on the adjacent Ngatoro and Kaimiro fields. Tectonic
activity along the Taranaki and Tarata fault zones also occurred
during the Miocene period. Tilting to the southwest and about one
kilometer of uplift occurred in the late Pliocene period.
The principal target formation on PEP 38723 is the Mount
Messenger sandstones. There is, however, much regional variation
within this formation given its deposition as toe and slope fans.
Experience from the Ngatoro wells indicates that there may be as
little as 1000 meters of continuity in the Mount Messenger
formation. Definition of drilling targets requires well control,
strong seismic anomalies and evidence of geologic structural
closure.
Papua New Guinea
Petroleum Prospecting License PPL 192 (40.0%)
PPL 192 lies across the Strickland River in Western Province,
Papua New Guinea. The area is covered by forests and is relatively
flat. The area is sparsely populated and the lack of roads leaves the
principal mode of transport as the Strickland River.
Drilling of several wells near to PPL 192 has given geologic
indications of features favorable to oil and gas exploration on PPL
192. Thirty miles to the north-west of PPL 192 a well drilled by
British Petroleum in 1990 was directed at a large basement drape
structure of some 25,000 acres in area and 250 feet of vertical
relief. The well encountered a basal Cretaceous sandstone at
10,040 feet which produced gas at 11.9 MMCFPD and condensate at 634
BCPD. Other wells have encountered structures and horizons which
are likely to be replicated in PPL 192. Generally, the geologic
system contains sizable, four-way dip closures of areas of up to
5,000 acres at the levels of Late Jurassic to Early Cretaceous
target horizons. There is widespread development at the 5,500 to
6,000 foot level of the Toro sandstones and overlying Cretaceous
marine shale which provide topseals, both of which have been
encountered throughout the area. Finally, the geologic structures
in the area were formed before hydrocarbon emplacement, meaning
that structural traps for entrapment of hydrocarbons existed at the
time of any hydrocarbon migration in the area.
38
PPL 192 has seen substantial exploration in the past. In the
early 1970's, the area was largely covered by seismic surveys by
Conoco, Marathon, Union Oil and others. In 1988 to 1990, Shell US,
spent about $30 million in exploration and acquired an open 8 km by
16 km seismic grid over most of the area, with an infilling down to
a 4 km by 4 km grid over the Kamu and Mamboi Prospects and the
Tagari and Pogo Leads. Several other single line leads are also
identified, and sizable structures may have been completely missed
by the existing seismic coverage, given the open nature of the
grid. In addition, the drilling in 1991 of the Langia-l well,
located in the southern part of PPL 192, resulted in the discovery
of 25 feet of gas pay at 5,000 feet depth which might extend over
an area of some 5,000 acres across the Langia structure.
Since 1991, there has been virtually no exploration in this
area as exploration in Papua New Guinea was at reduced levels and
was concentrated in the mountain fold belt to the north-east of PPL
192. Activity in the foreland area has recently increased. The
main feature in PPL 192 is the Kamu Prospect, a structure in the
center part of the area defined on seismic as covering an area of
approximately 4,500 acres, with a vertical relief of about 260 feet
at the Toro Sands level at about 5,500 feet depth. The Toro Sands
are widely developed across the Papuan Basin, and are the main
producing reservoir sequence in virtually all the onshore
discoveries. In addition to the Toro Sands, the Digimu and Imburu
Formations also may be target reservoir formations.
Computer reprocessing and remapping of the existing seismic
data is in process and a variety of geological studies are being
conducted to better define the potential size and exploration
uncertainties of the existing prospects and leads, particularly
focusing on the Kamu Prospect and the Langia Field. In the
immediate future, it is expected that several wells will be drilled
in adjacent foreland basin licenses, both southeast and northwest
of PPL 192, and these should also aid in understanding the
potential of PPL 192. After completion of the current geological
studies, further seismic acquisition will be considered before a
drilling program in the license is announced.
The participants intend to carry out a geological work
program, license administration and a seismic data collection,
processing and interpretation program at an estimated cost of
US$763,000. The Registrant's portion of the budgeted cost is
US$305,000.
The Registrant is in the process of applying for further
interests in Papua New Guinea.
39
Australia
Offshore Petroleum Exploration Permit Ashmore Cartier
AC/P19, Timor Sea (65.0%)
The Western Australian continental margin was formed in the
late Paleozoic era by the extension of this area of Gondwanaland.
This event determined the major crustal architecture of the
region. The AC/P19 permit area lies within the northern and western
portion of the Vulcan sub-basin and the eastern flank of the Ashmore
Platform. The Vulcan Sub-basin is a north-east trending, fault
bounded deposition area that is characterized by several prominent
troughs and a graben terrain. It is bounded to the northwest and
to the southeast by the Permian-Triassic blocks of the Ashmore
Platform and the Londonderry High. Up to ten kilometers of Upper
Permian to Tertiary sediments lie in the basin.
The Vulcan Sub-basin is thought to have undergone a complex
structural evolution that was dominated by three tectonic events,
a Late Triassic compression, a Late Jurassic NNW-SSE extension and
a Tertiary compression on collision with Pacific plates. The fault
styles are dominated by a mixture of tilted fault blocks in the
southern area and hourglass structures in the northern area. The
location and geometry of the basement rocks control the relative
position of the source rocks, fluid migration paths and reservoirs.
The Ashmore Platform is a large, elevated block that extends
along the western margin of the Vulcan sub-basin. Triassic
sediments on the Ashmore Platform are up to 4.5 kilometers thick.
Faulting of the area in the Late Triassic resulted in extensive
uplift and erosion. Flat-lying Cretaceous and Tertiary sediments
unconformably overlie the Triassic sediments.
Regionally, Late Jurassic shales have been the source rocks
for hydrocarbon formation. Source rock shales may also have been
deposited in Middle and Early Jurassic shales in the Cartier
Trough. Four dry wells have been drilled on the Ashmore Platform
and this area is of little interest to the Registrant. The area of
greatest interest is the Cartier Trough. The main objectives for
exploration are traps that occur within and bounding the Cartier
Trough. The water depth in the area is about 400 meters.
The participants intend to carry out a geological program and
a seismic collection, processing and interpretation program at an
estimated cost of US$600,000. The Registrant's portion of the
budgeted cost is US$390,000.
The Registrant is in the process of applying for further
offshore interests in the Timor Sea.
40
Offshore Gippsland Basin, Bass Strait Permit VIC/P-39
(33.33%)
The Gippsland Basin lies offshore between the mainland of
Australia and Tasmania, about 30 miles from the coastline of the
state of Victoria. All commercial oil and gas fields located in
the area have been discovered in structural or combined structural
and stratigraphic traps, mainly at the top of the Latrobe Group
Coarse Clastic formation. The basin was developed during the
separation of Australia from Antarctica by north-northeast to
south-southwest lithospheric extension during the Early Cretaceous
and the separation of Australia from the Lord Howe Rise and the
Campbell Plateau in the Late Cretaceous. Rifting occurred in the
Early Cretaceous and formed NNE-SSW transfer faults. Rift-bounding
faults terminate abruptly before reaching the Paleozoic Gippsland
Rise. The Rise is part of a regional belt which extends along the
eastern margin of Australia. A second phase of rifting occurred in
the Late Cretaceous, followed by a period of uplift and erosion
over much of the basin area. Most of the formations in the basin
area, including the Latrobe Group, are of marine to marginal marine
origin.
Source formations in the area of the Gippsland Basin are
located in the Western and Eastern Deeps. The Western Deep has
undergone predominantly coastal plain deposition while the Eastern
Deep was a transition zone between an estuary environment and
limited offshore deposition. The Eastern Deep was buried during
the Eocene period. Oil formation and migration occurred during the
Miocene period and is believed to have been over vertical distances
of two kilometers from the source formations to the coarse clastic
sandstone reservoirs.
Permit VIC/P-39 is surrounded by the Kingfish, Halibut and
Mackerel oil fields and the Marlin, Snapper, Bream and Barracouta
gas fields. Seismic mapping of the area is difficult due to the
existence of large, buried marine channels. Historically, seven
wells have been drilled in the area of permit VIC/P-39. However,
correct positioning of the exploration wells has been hindered by
the difficulty of interpreting seismic data. The buried marine
channels give a false representation of the subsurface geology.
The Veilfin-1 well tested gas with a small amount of condensate at
a depth of 9,760 feet and exhibited hydrocarbon shows in other
formations. Preliminary examination of seismic information
indicated that the well was drilled off structure and the area to
the south east of the well is considered a lead. The other wells
were also unsuccessful.
Other leads recognized in the permit area are Lead A and
Knifejaw. The former is an upthrown, tilted fault block about six
square kilometers in area and the latter has been mapped as a
downthrown tilted fault block. Water depths in the area are less
than 100 meters.
41
The participants intend to carry out a program of seismic
collection, processing and interpretation at an estimated cost of
US$600,000. The Registrant's portion of the budgeted cost is
US$200,000.
Offshore Exploration Permit WA-199-P (5%), Timor Sea, Western
Australia
This permit area is located on the south east flank of the
Sahul Syncline in the Timor Sea, north east of the AC/P19 permit
area. The permit has been held since 1984 by the principal
participants and work to date has identified two main prospects,
the Kittiwake Prospect in the northern part of the permit area and
the Avocet Deep Prospect in the southern part of the permit area.
The water depth over the Kittiwake Prospect is about 300 feet and
the target formation for drilling is the Plover sandstones at a
depth of about 9,000 feet. The target formation is at a depth of
some 12,000 feet.
The participants to complete geological and geophysical
studies with an estimated cost of AUS$100,000 (US$75,000) by
December 31, 1997 and to drill two exploration wells by December
31, 1998 with an estimated cost of AUS$12,700,000 (US$9,500,000).
The first well will test the Kittiwake Prospect and is expected to
be commenced in the first quarter of 1998 at an estimated cost of
US$6,360,000. The Registrant's portion of the budgeted costs is
US$636,000 to earn its five percent interest in the permit.
China
China-Joint Study Agreement of March 18, 1996 (50%)
The Registrant and Moondance Energy Ltd. are nearing the
completion of the study of existing seismic data and the
preparation of the report on the Nanling and Wuwei basins.
The basins are situated immediately north and south of the
Yangtze River in south-eastern Anhui Province and cover
approximately 2.5 million acres (3,900 square miles). The
shipbuilding center of Wuhu, a trading hub and deep-water river
port, is located in the eastern part of the Wuwei Basin. It has a
population of about 600,000 and is the last deep water port on the
Yangtze River, accommodating ships of up to 10,000 tons year round.
Shanghai is some 180 miles downstream.
The basins are geologically closely linked to the Subei Basin
in North Jiangsu Province, about 100 miles to the northeast.
Regionally, there was marine sedimentary deposition from the
Proterozoic to Early Mesozoic eras. This was followed by what is
called the Indosinian orogeny. This was a period of folding and
the occurrence of thrust faults with later erosion occurring from
the collision of the Yangtze and Huanan plates
42
into the Jurassic period. There was then a change to continental
sequences of deposition with arid conditions in the Early
Cretaceous, regional compression thrust faults and north-west
trending, high angle faulting occurred. This was followed in the
Late Cretaceous by extensional rift basin development which were
filled by thick continental deposits throughout the Cenozoic era.
As a consequence, the basins have complex structural features of
highly folded and eroded pre-Jurassic marine sequences which have
been later thrusted and buried under thousands of meters of
continental sedimentary formations. The current surface morphology
is relatively flat and the recent deposition of continental
sediments hides the complex structure.
The formations laid down in the Permian and Triassic periods
are considered the best source for hydrocarbons. Outcrops of
formations of Early Triassic age on the edges of the basins contain
hydrocarbons. Outcrops of the Late Cretaceous to early Cenozoic
strata have not been observed. The Paleozoic sediments are not
considered to be likely formations for the location of reservoirs.
On the south-western edge of the Wuwei Basin, there are outcrops of
Middle to Late Jurassic carbonates and on the south-east edge of
the Nanling basin there are outcrops of Cretaceous conglomerates
and an outcrop of a porous sandstone which may possibly be placed
in the Late Cretaceous period.
The regional folding that occurred during the Indosinian
orogeny created four-way dip closures that are the most favorable
structures for hydrocarbon entrapment. These "buried hill"
structures affect the overlying sediments. In the overlying
sediments, the normal and wrench faulting has created other traps
for hydrocarbons. Accordingly, there are a number of targets for
exploration, although the geology is complex. The basins contain
numerous other leads, including domal features and pinch outs,
unconformity, and stratigraphic and fault traps.
The basins have been lightly explored, with efforts by Chinese
exploration companies being limited to geophysical surveys and the
drilling of one deep exploration well. The participants have
reinterpreted about 360 miles of seismic data collected in the
Wuwei Basin in 1989 to 1994 and about 430 miles of pre-1982 analog
data and 52 miles of 1988 digital data in the Nanling Basin.
The existing seismic data from the Nanling and Wuwei Basins
was reprocessed in Shanghai for the Registrant as part of the
ongoing evaluation of these areas. The main Nanling Basin prospect
is the Hongzhuang Prospect, a mid-basin domal ridge approximately
8,000 feet deep at the crest, which is mapped in an upper level as
covering approximately 25 square miles, with almost 1,200 feet of
vertical relief. A second structure at about 12,000 feet deep
covering about eight square miles with almost 1,000 feet of
vertical relief has been detected.
43
Conceptual planning and costing of exploration wells on the
Hongzhuang Prospect in the Nanling Basin and the Longtangwan
Prospect in the Wuwei Basin is being completed, together with an
assessment of the costs of additional seismic programs, in
preparation for the next phase of work in these areas.
The Registrant is negotiating a Production Sharing Contract
with China National Oil and Gas Exploration and Development
Corporation and, if successful, the participants intend to carry
out further seismic work in the first half of 1998. Along with the
costs of administration, the estimated costs are US$1,105,000 of
which the Registrant's portion is US$553,000.
GLOSSARY OF TERMS
Currency and Measurement All currency amounts in this Statement
are stated in Canadian dollars unless
otherwise indicated.
Conversion into imperial equivalents is as follows:
Metric Units Imperial Units
hectare 2.471 acres
meter (m) 3.281 feet
kilometer (km) 0.621 miles (5,280 feet)
Geologic Time
Name of Era Name of Period Number of Years Before Present
Quaternary Holocene 0 to 400,000
Pleistocene 400,000 to 1,800,000
Tertiary Pliocene 1,800,000 to 5,000,000
Miocene 5,000,000 to 24,000,000
Oligocene 24,000,000 to 36,500,000
Eocene 36,500,000 to 56,000,000
Paleocene 56,000,000 to 66,000,000
Mesozoic Cretaceous 66,000,000 to 140,000,000
Jurassic 140,000,000 to 200,000,000
Triassic 200,000,000 to 250,000,000
Paleozoic Permian 250,000,000 to 290,00,000
Carboniferous 290,000,000 to 365,000,000
Devonian 365,000,000 to 405,000,000
Silurian 405,000,000 to 425,000,000
Ordivician 425,000,000 to 500,000,000
Anticline A geologic structure in which the
sedimentary strata are folded to form an
arch or dome.
44
Basin A segment of the crust of the Earth which
has been downwarped and in which thick
layers of sediments have accumulated over
a long period of time.
Condensate Hydrocarbons associated with natural gas
which are liquid under surface conditions
but gaseous in a reservoir before
extraction.
Depletion The reduction in petroleum reserves due
to production.
Development Phase The phase in which a proven oil or gas
field is brought into production by
drilling and completing production wells.
Dry Hole A well drilled without finding commercial
quantities of oil or gas.
Exploration Well A well drilled without knowledge of the
contents of the underlying rock.
Farm-In or Farm-Out A common form of agreement between
petroleum companies where the holder of
the petroleum interest agrees to assign
all or part of an interest in the
ownership to another party that is
willing to fund agreed exploration
activities.
Formation A reference to a group of rocks of the
same age extending over a substantial
area of a basin.
Hydrocarbons General term for oil, gas, condensate and
other petroleum products.
Lead An inferred geological feature or
structural pattern which on further
investigation may be upgraded to a
prospect.
Participating Interest An equity interest (compared with a
royalty interest) in an oil and gas
property whereby the participating
interest holder pays its proportionate
percentage share of development and
operating costs and receives the
equivalent share of the proceeds of
hydrocarbon sales after deduction of
royalties due on the gross income.
45
Pay Zone The stratum of sedimentary rock in which
oil or gas is found.
Prospect A potential hydrocarbon trap which has
been confirmed by geological and
geophysical studies to the degree that
drilling of an exploration well is
warranted.
Reservoir A porous and permeable sedimentary rock
formation containing adequate pore space
in the rock to provide storage space for
oil, gas or water.
Seal An impervious sedimentary rock formation
overlying a reservoir that prevents the
further migration of hydrocarbons.
Seismic A geophysical technique using low
frequency sound waves to determine the
subsurface structure of sedimentary
rocks.
Trap A geological structure in which
hydrocarbons build up to form an oil or
gas field.
Working Interest An equity interest, compared with a
royalty interest, in an oil and gas
property whereby the working interest
holder pays its proportionate share of
exploration, development and operating
costs and receives the equivalent share
of proceeds of hydrocarbon sales after
deduction of royalties due on the gross
income.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Registrant's securities are recorded on the books of its
transfer agent in registered form. However, the majority of such
shares are registered in the name of intermediaries such as
brokerage houses and clearing houses on behalf of their respective
clients and the Registrant does not have knowledge of the
beneficial owners thereof. The Registrant is not directly or
indirectly owned or controlled by a corporation or foreign
government.
As of September 30, 1997 the Registrant had authorized share
capital of 100,000,000 common shares without par value of which
28,262,398 shares were issued and outstanding.
46
Of the issued and outstanding shares, there are 1,406,250
shares subject to escrow restrictions and held in escrow by Pacific
Corporate Trust Company ("Pacific Corporate"), 830 - 625 Howe
Street, Vancouver, British Columbia pursuant to an agreement dated
April 8, 1994. The escrow shares were originally issued in
accordance with Local Policy 3-07 of the British Columbia
Securities Commission. 1,361,250 shares are owned by 437577 B.C.
Ltd., a private company the voting shares of which are owned by
Alex Guidi. Mr. Guidi is a member of the board of directors,
chairman and promoter of the Registrant. Two former directors own
45,000 and they are by the terms of the agreement dated April 8,
1994 obligated to transfer the escrow shares held by them to 437577
B.C. Ltd. or surrender the shares to the Registrant.
The agreement of April 8, 1994 provides that the beneficial
ownership of the common shares or any interest in them will not be
sold, assigned, hypothecated, alienated, released from escrow,
transferred within escrow or otherwise in any manner dealt with,
without the expressed consent, order or direction in writing from
the Executive Director, British Columbia Securities Commission,
except as may be required by the death or bankruptcy of any
shareholder. All voting rights attached to the escrowed shares may
be exercised by the registered owner and any dividends declared on
the common shares of the Registrant will similarly be paid to the
holders of the escrowed shares. The shares are released from
escrow on application to the Executive Director and an assessment
by the Executive Director of the progress of the Registrant's
business. If any shares are not released from escrow before April
25, 1999, those shares are to be cancelled.
The beneficial shareholdings of persons or entities holding
five percent or more of the Registrant's common shares as at
September 30, 1997 is as follows:
Percentage
Title of Class Person or Group Amount of Class
Common shares Alex Guidi [1] 5,904,076 20.89% [4]
Common shares Peter Loretto [2] 2,148,208 7.60% [4]
Common shares Jack Loretto [3] 1,747,925 6.16% [4]
[1] At September 30, 1997 Mr. Guidi held rights to acquire 994,000
common shares of the Registrant at various prices.
[2] At September 30, 1997 Mr. Loretto held rights to acquire
1,146,000 common shares at various prices.
[3] Jack Loretto is the father of Peter Loretto.
47
[4] Calculated on a non-diluted basis. On a fully diluted basis,
Mr. Guidi beneficially owns 21.26% of the shares, Mr. Peter
Loretto beneficially owns 10.61% of the shares and Mr. Jack
Loretto beneficially owns 5.38% of the shares of the
Registrant.
The directors, officers and affiliates as a group (four
persons) owned as of September 30, 1997, 5,905,076 shares of the
Registrant which is 20.89% of the outstanding shares on a non-diluted
basis or 26.00% of the outstanding shares of the Registrant
on a fully diluted basis. The holdings of the directors and
officers as at September 30, 1997 were as follows:
Name No. of Shares Beneficially Held
David Bennett Nil
Alex Guidi 5,904,076
John Holland Nil
Brad Holland [1] Nil
Mark Katsumata [1] 1,000
Under the Securities Act (Yukon), insiders (generally officers
and directors of the Registrant and its subsidiaries, persons who
own or control at least ten percent of the voting shares and
employees or consultants of the Registrant) are required to file
individual insider reports of changes in their ownership in the
Registrant's securities within the first ten days of the calendar
month following any trade in the Registrant's securities. Copies of
such reports are available for public inspection at the offices of
the British Columbia Securities Commission, Suite 1100 - 865 Hornby
Street, Vancouver, British Columbia V6Z 2H4 phone (604) 660-4800.
As at September 30, 1997, the names, holdings, exercise price
and expiry date of outstanding options to acquire common shares of
the Registrant were as follows:
Name Number of Shares Exercise Price Expiration
Under Option [1] Date
David Bennett 200,000 US$2.50 Oct. 30, 1998
Jennifer Bennett 50,000 US$2.50 March 25, 1999
Alex Guidi 500,000 US$2.50 Oct. 30, 1998
Brad Holland 832,000 US$2.50 May 13, 1998
John Holland 500,000 US$2.50 March 25, 1999
Mark Katsumata 6,000 US$3.00 May 12, 1999
Jennifer Muzzin 5,000 US$3.125 May 22, 1999
Carol Price 142,000 CDN$0.837 Dec. 31, 1997
Paul Townson 5,000 US$3.125 May 22, 1999
[1] In the three month period ended September 30, 1997, options to
acquire 169,000 shares were exercised.
48
As at September 30, 1997, the names, holdings, exercise price
and expiry date of outstanding warrants to purchase common shares
of the Registrant were as follows:
Number of
Name Share Purchase Price Expiration Date
Warrants
Tracy Godoy 160,000 CDN$3.485 May 27, 1998
Alex Guidi 494,000 CDN$3.485 May 27, 1998
Peter Loretto 146,000 [1] CDN$3.485 May 27, 1998
1,000,000 [2] Note [2] July 3, 2000
Tanya Loretto 150,000 CDN$3.485 May 27, 1998
[1] In the three month period ended September 30, 1997, warrants
to acquire 50,000 shares were exercised.
[2] By an agreement dated June 2, 1997, Mr. Loretto purchased
1,000,000 units for US$1.80 per unit. Each unit is comprised
of one common share and one non-transferable share purchase
warrant. Each share purchase warrant entitles the holder to
purchase a common share for US$1.90 before July 4, 1998, for
US$2.00 from July 4, 1998 to July 3, 1999 and for US$2.10 from
July 4, 1999 to July 3, 2000.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The names, municipality of residence, age and position held of
the directors and officers of the Registrant are as follows:
Name and Municipality of Age Position Held
Residence
Dr. David Bennett [1] 51 President, Chief Executive
Makara, Wellington Officer and Director
New Zealand
Alex P. Guidi 38 Chairman of the Board
Vancouver, British Columbia and Director
Canada
John B. Holland [1][2] 70 Director
Vancouver, British Columbia
Canada
Brad Holland [1][2][3] 40 Director
Dhahran, Saudi Arabia
Mark Katsumata [3] 31 Secretary
Surrey, British Columbia
Canada
49
[1] Member of audit committee.
[2] Brad Holland is the son of John Holland.
[3] Appointed on October 15, 1997.
Dr. David Bennett - President, Chief Executive Officer and a member
of the Board of Directors.
Dr. Bennett has been a member of the board of
directors and an officer since October 1996. Dr. Bennett
received a Bachelor of Arts (Natural Sciences) from Cambridge University
in 1968 and a Master of Science in Exploration Geophysics from the
University of Leeds in 1969. In 1973, Dr. Bennett received his
doctorate in Geophysics from the Australian National University
and from 1973 to 1975 conducted post-doctoral research at the
University of Texas (Dallas). From 1975 to 1977, Dr. Bennett was
a post-doctoral fellow and lecturer at the University of
Wellington, New Zealand. From 1977 to 1982, Dr. Bennett was
employed by the Department of Scientific and Industrial Research,
Government of New Zealand and from 1982 to 1994 was employed as
geophysicist, exploration manager and finally general manager by
New Zealand Oil and Gas Ltd. Dr. Bennett was an independent
consultant from 1994 to 1996 when he joined the Registrant and
other associated companies. Dr. Bennett has been the president
and a member of the board of directors of the Registrant since
October 1996. Since November 1996, Dr. Bennett has been a member of the
board of directors, and since April 1997 the president, of
Trans-Orient Petroleum Ltd. and since April 1997 a member of the
board of directors and president of Durum Energy Corp.
Mr. Alex Guidi - Chairman of the Board of Directors.
Mr. Guidi has been a member of the board of directors and an
officer since October 1996. Mr. Guidi has been involved in public
markets since 1980 and since 1986 in the oil and gas sector. Mr.
Guidi has organized and financed five oil and gas companies. Mr.
Guidi has been chairman of the board and a member of the board of
directors of the Registrant since October 1996. From July 1988 to
December 1995, Mr. Guidi was a member of the board of directors of
Trans-Orient Petroleum Ltd. From December 1990 to May 1996, Mr.
Guidi was a member of the board of directors of Durum Energy Corp.
and was president from August 1992 to May 1996.
Mr. John Holland - Member of the Board of Directors
Mr. Holland has been a member of the board of directors since
November 1995. Mr. Holland received a Bachelor of Science in
Petroleum Engineering from the University of Alberta in 1956. From
1956 to 1962, Mr. Holland was employed by Imperial Oil
50
Limited (Esso) in production and reservoir engineering and project
and company evaluation. From 1962 to 1969, Mr. Holland worked with
Cancrude Engineering Ltd., a petroleum consulting firm with major
clients in Australia, Canada and the United States in the gas well
testing and deliverability, injectivity activity and storage
balance studies for gas reservoirs and in supervising all
professional engineering operations in Canada and Australia. In
1978, Mr. Holland formed a consulting firm specializing in
reservoir mechanics, and the production and transmission of natural
gas. In 1969 to 1972, Mr. Holland joined James A. Lewis
Engineering. He had responsibility for all engineering functions
and production management and supervised the installation of
various gas gathering plants and compression facilities, and
conducted reservoir studies, in Canada, the Middle East and
Australia. From 1973 to 1975, Mr. Holland also acted as a
consultant to a Canadian financial advisory firm, specializing in
stock market analysis, company research reports, industry forecasts
and monthly oil and gas commentary. From 1975 to 1977, Mr. Holland
was the president of the Canadian subsidiary of Omnium Techniques
de Transport par Pipelines and engaged in projects in Libya,
Turkey, Indonesia and Canada including two rural gasification
projects in Alberta. From 1978 to 1980, Mr. Holland returned to a
consulting practice specializing in property valuation, production
management, evaluation and financing for production acquisition.
From 1980 to 1984, Mr. Holland was the founder and manager of a
publicly listed oil and gas exploration and production company and
since 1984 has been a principal of a private oil and gas
exploration and production company operating principally in
Alberta. Mr. Holland has been a member of the board of directors
of the Registrant since August 1992 with an interregnum between
September 1993 and November 1995, and was the president of the
Registrant from November 1995 to October 1996. Mr. Holland has
been a director of the Registrant since November 1995. From June
1996 to April 1997, Mr. Holland was the president, chief executive
officer and a member of the board of directors of Trans-Orient
Petroleum Ltd. From July 1993 to April 1997, Mr. Holland was a
member of the board of directors of Durum Energy Corp. Mr. Holland
has also served as chief financial officer of Durum Energy Corp.
Since April 1996 Mr. Holland has been a lifetime member of the
Association of Professional Engineers, Geologists and Geophysicists
of Alberta, Canada.
Mr. Brad Holland - Member of the Board of Directors.
Mr. Holland was a member of the board of directors from May
1996 to February 1997, an officer from February 1997 to October 15,
1997 and was appointed a member of the board on October 15, 1997.
Mr. Holland received a Bachelor of Science in Chemical Engineering
from the University of Alberta in 1979. Mr. Holland was initially
employed for two years by John Holland Consultants Ltd. in property
valuation, production management, evaluation and financing for
51
production acquisition. From 1982 to 1988, Mr. Holland was
employed by Canadian Western Natural Gas, a natural gas utility.
From 1988 to 1992, Mr. Holland was employed as a senior project
engineer with Nova Corp. where he was responsible for the design
and construction of large diameter pipeline projects. Since 1992,
Mr. Holland has been employed by ARAMCO in Saudi Arabia in the
construction of pipelines.
Mr. Mark Katsumata - Secretary and a member of the Board of
Directors
Mr. Katsumata was a director and officer from December 1994 to
November 1995 and an officer from November 1995 to February 1997.
Mr. Katsumata was appointed an officer on October 15, 1997. Mr.
Katsumata is a certified general accountant who was in public
practice from 1990 to 1994 in Vancouver, B. C. In 1994 Mr.
Katsumata joined the Registrant and associated companies as
controller.
All directors have a term of office expiring at the next
annual general meeting of the Registrant to be scheduled in June
1998 unless re-elected or unless a director's office is earlier
vacated in accordance with the by-laws of the Registrant or the
provisions of the Business Corporations Act (Yukon). All officers
have a term of office lasting until their removal or replacement by
the board of directors.
ITEM 6. EXECUTIVE COMPENSATION
During the nine month period ended September 30, 1997 the
Registrant had two executive officers: David Bennett, president and
chief executive officer and Alex Guidi, chairman of the board. The
aggregate cash compensation paid or payable by the Registrant and
its subsidiaries to its executive officers during the nine month
period ending September 30, 1997 was $66,550.
During the financial period ended December 31, 1996 the
Registrant had three executive officers: David Bennett, president
and chief executive officer; Alex Guidi, chairman of the board; and
John Holland, a former president and chief executive officer. The
aggregate cash compensation paid or payable by the Registrant and
its subsidiaries to its executive officers during the financial
period ending December 31, 1996 was $109,650. During the financial
period ended December 31, 1995, the Registrant had two executive
officers: John Holland, a former president and chief executive
officer, and Mark Katsumata, a former president and chief executive
officer. No cash compensation was paid or remains payable by the
Registrant and its subsidiaries to its executive officers during
the financial year ended December 31, 1995.
52
No long-term incentive plan awards have been made to the
directors and officers for the Registrant's most recently completed
financial year or in the nine month period ended September 30,
1997.
No other cash compensation, including salaries, fees,
commissions, and bonuses, was paid or is to be paid to the
directors and officers of the Registrant for services rendered for
the financial year ended December 31, 1996 or the nine month period
ended September 30, 1997, nor was any remuneration paid to the
Registrant's directors in their capacity as such.
No profit sharing, pension or retirement benefit plans have
been instituted by the Registrant and none are proposed at this
time. There are no arrangements for payments on termination of
any member of management in the event of a change of control.
The aggregate value of directors' and senior officers' options
exercised below the market price of the shares at the time of
exercise for the nine month period ended September 30, 1997 was
$710,359, for the year ended December 31, 1996 was $3,224,925 and
for the period ended December 31, 1995 was nil. These benefits are
calculated as the difference between the market price and option
exercise price on the date of exercise. Actual proceeds of the
disposition will usually vary from the date of the exercise to the
date of actual disposition of such shares.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisitions with Associated Companies
The Registrant has acquired interests in some petroleum
properties with four other companies, Durum Energy Corp.
("Durum"), Trans-Orient Petroleum Ltd. ("TOP"), Trans New Zealand
Oil Company ("TNZ") and Gondwana Energy Ltd. ("Gondwana"). Mr.
Alex Guidi is the promoter, a member of the board of directors and
the chairman of the Registrant. Mr. Guidi is also the promoter of
TOP, TNZ and Gondwana and a member of the board of directors of
TNZ. Dr. David Bennett is the president, chief executive officer
and a member of the board of directors of the Registrant, TOP and
Durum. Mr. John Holland is a director of the Registrant, a
director and secretary of TNZ and a director and treasurer of
Gondwana. Messrs. Bernhard Zinkhofer and Peter McKeown are members
of the board of directors of TOP and Durum.
At September 30, 1997 Mr. Guidi beneficially held 5,904,076
common shares of the Registrant of a total outstanding of
28,262,398 common shares (20.89%) and held rights to acquire an
additional 994,000 common shares at various prices. At October 15,
1997 Mr. Guidi beneficially held 2,463,700 common shares of
53
TOP of a total outstanding of 9,063,520 common shares (27.18%) and
held warrants entitling him to purchase an additional 1,557,000
common shares. At September 30, 1997 Mr. Guidi beneficially held
1,000,000 common shares of Durum of a total outstanding of
9,541,908 common shares (10.48%). At September 30, 1997 Mr. Guidi
held 5,031,000 common shares of TNZ of a total outstanding of
9,000,000 common shares (55.9%).
Other
No director or senior officer, and no associate or affiliate
of the foregoing persons, and no insider has, or has had any
material interest, direct or indirect, in any transactions, or in
any proposed transaction which in either such case has materially
affected or will materially affect the Registrant or its
predecessors except as disclosed herein.
Related Party Transactions
In the nine month period ended September 30, 1997, consulting
fees of $66,550 were paid to Dr. David Bennett, president and chief
executive officer of the Registrant. During the fiscal year ended
December 31, 1996, consulting fees of $109,069 (December 31, 1995
fiscal period - $40,068) were paid to Dr. Bennett.
In May 1996, the Registrant sold 1,000,000 units pursuant to
a private placement. Each unit consists of one common share of
the Registrant and one share purchase warrant. Each share purchase
warrant entitles the holder to purchase a common share for $3.485
per share until May 27, 1998. Mr. Alex Guidi, chairman of the
board and a director of the Registrant, acquired 494,000 units.
By an agreement dated May 18, 1995, the Registrant granted
Durum Energy Corp. ("Durum"), a company with a common director, the
right to acquire up to a 20% interest in future exploration
ventures undertaken by the Registrant for a one year period,
renewable annually. In return, Durum would provide the Registrant
with certain services and duties in connection with the conduct of
the business of the Registrant. During the fiscal year ended
December 31, 1996, this agreement was cancelled.
By an agreement dated February 1, 1993, the Registrant entered
into an agreement with Dass No.35 Holdings Ltd. ("Dass"), a company
wholly owned by Peter Loretto, a former president and director of
the Registrant, whereby Dass would provide consulting services and
pay administrative expenses for $2,500 per month. During the
fiscal year ended December 31, 1996, the Registrant paid $20,500
(December 31, 1995 fiscal period - $16,500) to Dass. The agreement
was cancelled in 1996.
54
By an agreement dated February 1, 1993, the Registrant entered
into an agreement with Wavecrest Capital Inc. ("Wavecrest"), a
company wholly owned by Tanya Loretto, wife of Peter Loretto,
whereby Wavecrest would provide management services for $2,500 per
month. During the fiscal year ended December 31, 1996, this
agreement was cancelled; however, $5,000 was paid by the Registrant
(December 31, 1995 fiscal period - $27,500) to Wavecrest.
By an agreement dated September 1, 1997 the Registrant
assigned a participating interest of 10.0% in petroleum exploration
permit 38328, East Coast Basin, New Zealand to a subsidiary of
Trans-Orient Petroleum Ltd. for nominal consideration.
By an agreement dated September 15, 1997 the Registrant
advanced $325,000 to Trans-Orient Petroleum Ltd. in consideration
of the issuance of 233,510 shares of Trans-Orient Petroleum Ltd.
for CDN$1.3918 (US$1.00) per share.
By an agreement dated September 1, 1997 the Registrant
assigned a participating interest of 10% in petroleum exploration
permit 38256, Canterbury Basin, New Zealand to a subsidiary of
Trans New Zealand Oil Company Ltd. and a participating interest of
5.0% to a subsidiary of Gondwana Energy Ltd. for nominal
consideration.
By an agreement dated June 30, 1997, the Registrant assigned
a participating interest of six percent in petroleum exploration
permit PEP 38716, Taranaki Basin, New Zealand to Durum Energy Corp.
for nominal consideration.
By an agreement dated June 30, 1997, the Registrant assigned
a participating interest of 20% in petroleum prospecting license
PPL 192, Papua New Guinea to a subsidiary of Trans Orient Petroleum
Ltd. and a participating interest of 20% in petroleum prospecting
license PPL 192, Papua New Guinea to a subsidiary of Durum Energy
Corp. for nominal consideration.
Any member of the Registrant's management that, in its
capacity as such, locates or acquires an interest in an oil and gas
property must, because of his or her fiduciary relationship with
the Registrant, present the opportunity to effect such acquisition
by the Registrant on terms commensurate with those prevailing in
the industry. If however, the Registrant declines to participate
in the acquisition of any such property, these members of the
Registrant's management may effect an acquisition for their own
account. The directors and officers of the Registrant are both by
statute and at common law, required to act fairly and in the best
interests of the Registrant and are not permitted to breach this
fiduciary duty for their own benefit.
55
ITEM 8. LEGAL PROCEEDINGS
There are no material legal proceedings to which the
Registrant is subject or which are anticipated or threatened.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of the Registrant traded on the Vancouver Stock
Exchange ("VSE") in Vancouver, British Columbia, Canada to
September 13, 1996. Since January 1996 the shares of the
Registrant have traded and continue to trade on the OTC Bulletin
Board under the symbol "INDX". Summary trading by quarter,
adjusted for the 1996 stock subdivisions, for the two most recent
calendar years ending December 31, 1996 and to September 30, 1997
on the VSE and the Bulletin Board are as follows:
VSE and Bulletin Board
(in Canadian dollars unless otherwise indicated)
Year and High Low Close Trading Volume
Quarter
1995
First Quarter $ 0.32 $ 0.10 $ 0.32 1,224,585
Second Quarter 0.97 0.33 0.83 2,069,244
Third Quarter 1.05 0.78 0.80 1,755,039
Fourth Quarter 1.13 0.75 1.12 1,422,801
1996
First Quarter 2.75 0.97 2.67 6,100,851
Second Quarter 7.80 2.71 5.80 28,021,277
Third Quarter [1] US$10.25 US$3.00 US$5.75 9,214,099
Fourth Quarter US$ 7.75 US$1.75 US$3.13 8,341,500
1997
First Quarter US$ 4.03 US$0.30 US$2.25 10,027,100
Second Quarter US$ 4.437 US$2.25 US$4.312 2,337,700
Third Quarter US$ 3.687 US$3.562 US$3.656 52,900
[1] To September 12, 1996 on the VSE and thereafter only on the
Bulletin Board.
As at September 30, 1997 there were 28,262,398 of the
Registrant's shares issued and outstanding. At September 30, 1997
holders of record within the United States collectively held
16,250,947 of such shares, or approximately 57.5% of the
Registrant's issued and outstanding shares. To the best of the
knowledge, information and belief of the Registrant, shares of the
Registrant are held by U.S. residents through brokerage
56
clearing houses, depositories or otherwise in unregistered form,
but the actual number and percentage of these shares is not known
by the Registrant.
No cash dividends have been declared by the Registrant nor are
any intended to be declared. The Registrant is not subject to any
legal restrictions respecting the payment of dividends (except that
they may not be paid to render the Registrant insolvent). Dividend
policy will be based on the Registrant's cash resources and needs
and it is anticipated that all available cash will be needed for
property development for the foreseeable future.
Exchange Controls and Other Limitations Affecting Security
Holders.
There is no law or governmental decree or regulation in Canada
that restricts the export or import of capital, or affects the
remittance of dividends, interest or other payments to a non-resident
holder of common shares of the Registrant, other than
withholding tax requirements. The 1980 Tax Convention between
Canada and the United States provides for a rate of withholding tax
on dividends of five percent of the amount to be paid if the
recipient is a corporation and holds more than 10% of the shares of
the Registrant and a withholding tax of 15% in all other cases. In
the absence of the 1980 Tax Convention, the rate would be 25%
percent on all distributions of dividends.
There is no law or governmental decree or regulation in Canada
that restricts the export or import of capital, or affects the
remittance of dividends, interest or other payments to a non-resident
holder of Common shares, other than withholding tax
requirements. Any such remittances to United States residents are
subject to withholding tax. See "Taxation."
There is no limitation imposed by the laws of Canada or by the
charter or other constituent documents of the Registrant on the
right of a non-resident to hold or vote common shares, other than
as provided in the Investment Canada Act (Canada) (the "Investment
Act"). The following discussion summarizes the principal features
of the Investment Act for a non-resident who proposes to acquire
common shares. It is general only, it is not a substitute for
independent advice from an investor's own advisor, and it does not
anticipate statutory or regulatory amendments.
The Investment Act generally prohibits implementation of a
reviewable investment by an individual, government or agency
thereof, corporation, partnership, trust or joint venture (each an
"entity") that is not a "Canadian" as defined in the Investment Act
(a "non-Canadian"), unless after review the minister responsible
for the Investment Act (the "Minister") is satisfied that the
investment is likely to be of net benefit to Canada. An investment
57
in common shares by a non-Canadian other than a "WTO Investor" (as
that term is defined in the Investment Act and which term includes
entities which are nationals of or are controlled by nationals of
members of the World Trade Organization) when the Registrant was
not controlled by a WTO Investor, would be reviewable under the
Investment Act if it was an investment to acquire control of the
Registrant and the value of the assets of the Registrant was $5
million or more, or if an order for review was made by the federal
cabinet on the grounds that the investment related to Canada's
cultural heritage or national identity. An investment in common
shares by a WTO Investor, or by a non-Canadian when the Registrant
was controlled by a WTO Investor, would be reviewable under the
Investment Act if it was an investment to acquire control of the
Registrant and the value of the assets of the Registrant was not
less than a specified amount, which for 1997 is CDN. $172 million,
and which increases each year by an amount equal to the increase in
current nominal Gross Domestic Product. A non-Canadian would
acquire control of the Registrant for the purposes of the
Investment Act if the non-Canadian acquired a majority of the
common shares. The acquisition of less than a majority but one-third
or more of the common shares would be presumed to be an
acquisition of control of the Registrant unless it could be
established that, on the acquisition, the Registrant was not
controlled in fact by the acquirer through the ownership of
common shares.
Certain transactions relating to common shares would be
exempt from the Investment Act, including:
(a) an acquisition of common shares by a person in the
ordinary course of that person's business as a trader or dealer
in securities,
(b) an acquisition of control of the Registrant in connection
with the realization of security granted for a loan or other
financial assistance and not for a purpose related to the
provisions of the Investment Act, and
(c) an acquisition of control of the Registrant by reason of
an amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control in fact of
the Registrant, through the ownership of common shares, remained
unchanged.
Acquisitions of control by WTO Investors of certain Canadian
businesses are subject to review even if the value of the assets
of the Canadian business does not exceed the annual threshold
applicable to WTO Investors (CDN.$160 million in 1995). For
example, investments in the following sectors are subject to the
$5 million threshold applicable to all non-Canadians: uranium,
financial services, transportation services and cultural
businesses, which include publication, distribution and sale of
58
books, magazines, periodicals, newspapers, music, film and video
products and the exhibition of film and video products and
broadcast media such as television and radio services. The
Minister has also issued an Interpretation Note advising that oil
and gas properties, and other mineral properties, which are only
at the exploration stage, are not considered to be a business. A
producing mine, however, is considered to be a business as is a
property on which development of a mine has been commenced for
the purpose of production.
Taxation
The following summarizes the principal Canadian federal
income tax considerations applicable to the holding and
disposition of common shares by a holder of one or more common
shares (the "Holder") who is resident in the United States of
America and holds common shares solely as capital property. This
summary is based on the current provisions of the Income Tax Act
(Canada) (the "Tax Act"), the regulations thereunder and all
amendments to the Tax Act publicly proposed by the government of
Canada to the date hereof, and on the current provisions of the
Canada-U.S. 1980 Tax Convention (the "Treaty"). It has been
assumed that all currently proposed amendments to the Tax Act
will be enacted as proposed and there is no other relevant change
in any governing law, although no assurance can be given in these
respects.
Every Holder is liable to pay a Canadian withholding tax on
every dividend that is or is deemed to be paid or credited to the
Holder on the Holder's common shares. Under the Treaty, the rate
of withholding tax is, if the Holder is a company that owns at
least 10% of the voting stock of the Registrant and beneficially
owns the dividend, 5%, and in any other case 15%, of the gross
amount of the dividend.
Pursuant to the Act, a Holder will not be subject to
Canadian capital gains tax on any capital gain realized on an
actual or deemed disposition of a common share, including a
deemed disposition on death, provided either that the Holder did
not hold the common share as capital property used in carrying on
a business in Canada, or that neither the Holder nor persons with
whom the Holder did not deal at arm's length alone or together
owned 25% or more of the issued shares of any class of the
Registrant at any time in the five years immediately preceding
the disposition.
Subject to certain limited exceptions, a Holder who
otherwise would be liable for Canadian capital gains tax in
consequence of an actual or deemed disposition of a common share
will generally be relieved by the Treaty from such liability.
59
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has issued the following common shares at the
following prices:
Date No. of Shares Consideration
To Dec. 31, 1996 26,933,398 $19,275,707
March 20, 1997 10,000 8,400
June 26, 1997 100,000 344,325
July 3, 1997 4,000 16,580
July 8, 1997 50,000 171,063
July 15, 1997 1,000,000 2,471,760
July 29, 1997 100,000 345,350
July 30, 1997 15,000 12,550
Sept. 10, 1997 50,000 174,250
Total: 28,262,398 $22,819,985
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The securities of the Registrant to be registered are common
shares without par value. All common shares of the Registrant's
common stock, both issued and unissued are of the same class and
rank equally as to dividends, voting powers and participation in
the assets of the Registrant on a winding-up or dissolution. No
common shares have been issued subject to call or assessment.
There are no preemptive or conversion rights, and no provisions
for redemption, purchase for cancellation, surrender of sinking
fluid or purchase fund. Provisions as to the creation or
modifications, amendments or variations of such rights or such
provisions are contained in the Business Corporations Act
(Yukon). Each common share is entitled to one vote with respect
to the election of directors and other matters to which
shareholders are ordinarily entitled. All references to "shares"
or "common shares" herein refer to common shares without par
value of the Registrant or its predecessors, all of which have
had only one class or kind of security authorized or issued in
the past, that being common shares without par value.
Pursuant to the applicable provisions of the Business
Corporations Act (Yukon) (the "Corporations Act"), no right or
special right attached to any share of the Registrant, may be
prejudiced, modified or otherwise "interfered with" under the
Corporations Act or the by-laws of Registrant, unless the members
of the class of shareholders affected consent to such action by a
separate resolution of the members of that class adopted by at
least a majority of two-thirds of the votes cast with respect to
the resolution. Under certain circumstances, two-thirds of the
votes cast with respect to such resolution may be less than a
majority of more than 50% of the total number of shares in that
class which are issued and outstanding, since under the by-laws
60
of the Registrant, a quorum for a general meeting of the holders
of a class of share consist of two shareholders holding not less
than five percent of the outstanding shares of that class share.
The Registrant's registrar and transfer agent is Pacific
Corporate Trust Company, Suite 830 - 625 Howe Street, Vancouver,
British Columbia, Canada V6C 3B8, telephone (604) 689-9853,
facsimile (604) 689-8144.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except with respect to an action by the Registrant to obtain
a judgment, the constating documents of the Registrant provide
for the indemnification of any director, officer, employee or
agent of the Registrant if the person acted honestly and in good
faith with a view to the best interests of the Registrant and,
with respect to any criminal action or administrative proceeding,
had reasonable grounds to believe that his action was lawful.
The Registrant has not, however, entered into any agreement with
a director and officer providing for the grant of a covenant of
indemnity by the Registrant pursuant to this provision in the
constating documents of the Registrant.
With respect to an action to obtain a judgment, the
Registrant is required under the Business Corporations Act
(Yukon) before performing its obligation to indemnify to obtain
the approval of the Supreme Court (Yukon) of the indemnity and
any payment to be made in connection with the indemnity.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
61
AUDITORS' REPORT
To the Directors of Indo-Pacific Energy Ltd.
(Formerly Consolidated Newjay Resources Ltd.)
We have audited the consolidated balance sheets of Indo-Pacific
Energy Ltd. (formerly Consolidated Newjay Resources Ltd.)
as at December 31, 1996 and 1995 and the consolidated statements
of loss and deficit and changes in financial position for the
year ended December 31, 1996, for the eleven month period ended
December 31, 1995 and for the year ended January 31, 1995. 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 generally
accepted auditing standards in Canada. Those standards require
that we plan and perform an audit to obtain reasonable assurance
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall 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, 1996 and 1995 and the results
of its operations and the changes in its financial position for
the year ended December 31, 1996, for the eleven month period
ended December 31, 1995 and for the year ended January 31, 1995
in accordance with generally accepted accounting principles in
Canada. As required by the Company Act (British Columbia), we
report that, in our opinion, these principles have been applied
on a consistent basis.
We have previously reported to the shareholders on our
report dated April 24, 1997 and these consolidated financial
statements are issued for purposes of regulatory filing and not
for any other purpose.
/s/ Sadovnick Telford & Skov
CHARTERED ACCOUNTANTS
Vancouver, B.C.
October 17, 1997
F-1
62
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN CANADIAN DOLLARS)
AS AT DECEMBER 31, 1996 AND 1995
Note
Reference 1996 1995
ASSETS
CURRENT
Cash and short term deposits $12,941,964 $1,330,780
Accounts receivable 196,325 31,944
Prepaid expenses 15,723 34,878
13,154,012 1,397,602
PETROLEUM AND NATURAL
GAS PROPERTIES 3 1,517,758 83,178
PROPERTY AND EQUIPMENT 4 47,572 8,411
INCORPORATION COSTS - 971
$14,719,342 $1,490,162
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 119,291 $ 90,795
SHAREHOLDERS' EQUITY
SHARE CAPITAL 5, 12 19,275,707 5,861,540
DEFICIT (4,675,656) (4,462,173)
14,600,051 1,399,367
$14,719,342 $1,490,162
APPROVED BY THE DIRECTORS:
/s/ Alex Guidi, Director
/s/ John Holland, Director
Subject to Auditors' Report dated October 17, 1997.
F-2
63
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE YEAR ENDED DECEMBER 31, 1996,
THE ELEVEN MONTH PERIOD ENDED DECEMBER 31, 1995
AND THE YEAR ENDED JANUARY 31, 1995
For the Eleven
For the Year Month Period For the Year
Ended Ended Ended
December 31, December 31, January 31,
1996 1995 1995
(Note 10)
REVENUE
Petroleum and
natural gas sales $ 222,501 $ - $ -
Interest income 358,214 53,352 36,407
580,715 53,352 36,407
COST OF SALES
Amortization
and depletion 133,879 1,318 -
Production costs 26,334 - -
Royalties 25,966 - -
186,179 1,318 -
394,536 52,034 36,407
EXPENSES
General and administrative
(Schedule) 556,716 233,676 108,049
Write-down of
petroleum properties 51,303 - -
608,019 233,676 108,049
NET LOSS FOR THE PERIOD 213,483 181,642 71,642
DEFICIT -
BEGINNING OF PERIOD 4,462,173 4,280,531 4,208,889
DEFICIT - END OF PERIOD $4,675,656 $4,462,173 $4,280,531
LOSS PER SHARE $ 0.01 $ 0.01 $ 0.01
Subject to Auditors' Report dated October 17, 1997.
F-3
64
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE YEAR ENDED DECEMBER 31, 1996,
THE ELEVEN MONTH PERIOD ENDED DECEMBER 31, 1995
AND THE YEAR ENDED JANUARY 31, 1995
For the Eleven
For the Year Month Period For the Year
Ended Ended Ended
December 31, December 31, January 31,
1996 1995 1995
(Note 10)
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES:
OPERATING
Loss for the period $ (213,483) $(181,642) $ (71,642)
Items not affecting cash
Amortization and depletion 133,879 1,318 -
Write-down of
petroleum properties 51,303 - -
Write-off of
incorporation costs 971 - -
(27,330) (180,324) (71,642)
Changes in non-cash
working capital items:
Accounts receivable (164,381) (12,931) (10,004)
Accounts payable
and accrued liabilities 28,496 72,437 (41,557)
Prepaid expenses 19,155 (31,822) (1,701)
(144,060) (152,640) (124,904)
FINANCING
Issue of share capital 13,414,167 774,380 160,307
Share issue cost - - (23,128)
Repayment of loan payable - - (9,171)
13,414,167 774,380 128,008
INVESTING
Petroleum and natural
gas properties (1,610,539) (68,597) -
Property and equipment (48,384) (9,729) (14,581)
(1,658,923) (78,326) (14,581)
NET CASH INFLOW (OUTFLOW) 11,611,184 543,414 (11,477)
CASH AND SHORT TERM DEPOSITS
- BEGINNING OF PERIOD 1,330,780 787,366 798,843
CASH AND SHORT TERM DEPOSITS
- END OF PERIOD $12,941,964 $1,330,780 $ 787,366
Subject to Auditors' Report dated October 17, 1997.
F-4
65
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE YEAR ENDED DECEMBER 31, 1996,
THE ELEVEN MONTH PERIOD ENDED DECEMBER 31, 1995
AND THE YEAR ENDED JANUARY 31, 1995
Non-Cash Investing and Financing Activities
For the period ended December 31, 1995, the Company granted
stock options the market value of which at the date the options
were granted exceeded the exercise price by an aggregate of
$63,000.
For the year ended December 31, 1996, the Company granted
stock options the market value of which at the date the options
were granted exceeded the exercise price by an aggregate of
$697,923.
Subject to Auditors' Report dated October 17, 1997
F-5
66
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 1 - NATURE OF OPERATIONS
The Company is incorporated under the laws of the Province of
British Columbia. Its major activity is the acquisition,
exploration and development of petroleum and natural gas
interests.
The recoverability of amounts capitalized for petroleum and
natural gas properties is dependent upon the existence of
economically recoverable reserves.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Consolidation
These consolidated financial statements include the accounts
of Indo-Pacific Energy Ltd. and its wholly-owned subsidiaries,
Indo Overseas Exploration Ltd., Indo-Pacific Energy (PNG) Pty.
Limited and Indo-Pacific Energy (NZ) Limited and its wholly-owned
subsidiary, Ngatoro Energy Limited (formerly Minora Energy (New
Zealand) Limited).
b) Joint Operations
Substantially all of the Company's exploration and
production activities related to oil and gas activities are
conducted jointly with others and, accordingly, the accounts
reflect only the Company's proportionate interest in these
activities.
c) Cash and Short Term Deposits
Cash and short term deposits include Government treasury
bills and Bankers' Acceptance with maturity within 90 days of the
date purchase.
Subject to Auditors' Report dated October 17, 1997.
F-6
67 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
d) Petroleum and Natural Gas Properties
The Company follows the full cost method of accounting for
petroleum and natural gas operations whereby all costs associated
with the acquisition of, exploration for and development of
petroleum and natural gas reserves are capitalized. Such costs
include lease acquisition, geological and geophysical, lease
rentals on non-producing properties, costs of drilling productive
and non-productive wells and overhead expenses directly related
to these activities. Such costs are depleted using the unit of
production method based on proven reserves of oil and gas as
determined by management and/or the Company's independent
consulting engineers.
In order to compute depletion, natural gas production and
reserves are stated in equivalent units of oil, based on the
relative energy content of each commodity. No gain or loss is
recognized on the sale or disposition of oil and gas properties
except for dispositions which would significantly change
depletion rates.
Costs of acquiring and evaluating unproven properties are
initially excluded from depletion calculations. These unproven
properties are assessed annually to ascertain whether impairment
has occurred. Impairment for each property is estimated by
applying factors that rely on historical experience.
At each fiscal year end, any unproven property without firm
plans for further exploration work in the foreseeable future will
be written off by the Company. In general, the Company may write
off any unproven property under one or more of the following
conditions:
i) exploration work done on the unproven property during
the fiscal year produced negative results which does not merit
further exploration;
ii) exploration work done in the vicinity of the unproven
property during the fiscal year produced negative results which
does not merit further exploration on the Company's unproven
property; and
Subject to Auditors' Report dated October 17, 1997
F-7
68 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
d) Petroleum and Natural Gas Properties (Cont'd)
iii) for a non-renewable leased property or permit, the
expiration date of the permit does not allow sufficient time for
exploration work on the unproven property.
The Company applies a "ceiling test" to net capitalized
costs to ensure that such costs do not exceed estimated net
revenues after income taxes, general and administrative costs,
future removal and site restoration costs and financing costs
from production of proven reserves. Excess carrying value, if
any, is recorded as depletion in the year. Estimated net
revenues are determined by applying year-end prices to estimated
proven reserves.
e) Property and Equipment
Property and equipment are recorded at cost and amortized
over their estimated useful lives on a declining balance basis as
follows:
Office equipment 20% to 30%
Automobile 30%
In the period a capital asset is acquired, management deems
it to be acquired midway through the fiscal period and
accordingly the amortization recorded is restricted to one-half
of the normal rate. Amortization will not be taken in the period
of disposal.
f) Translation of Foreign Currencies
Foreign currencies are converted into Canadian dollars as
follows:
- Monetary assets and monetary liabilities at the rate of
exchange prevailing at the balance sheet date.
- Non-monetary assets at the rate of exchange prevailing at
the acquisition date; and
- Revenue and expenses at a rate which approximates the
average rate of exchange for the period.
- Exchange gains and losses are recorded as income or
expense in the period in which they occur.
Subject to Auditors' Report dated October 17, 1997
69 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
g) Measurement Uncertainty
The amounts recorded for depletion and amortization of
petroleum and natural gas properties and equipment and for future
site restoration and abandonment are based on estimates of
reserves and future costs. By their nature, these estimates and
those related to the future cash flows used to assess impairment
are subject to measurement uncertainty and the impact on the
financial statements of future periods could be material.
NOTE 3 - PETROLEUM AND NATURAL GAS PROPERTIES
Petroleum and natural gas properties are comprised as follows:
1996 1995
Accumulated Net Book Net Book
Cost Amortization Value Value
and Depletion
Proven:
New Zealand
Ngatoro Oil Field $ 626,569 $147,814 $ 478,755 $ -
Total Proven 626,569 147,814 478,755 -
Unproven:
New Zealand
PEP 38328 427,728 - 427,728 -
PEP 38330 32,085 - 32,085 -
PEP 38716 204,372 - 204,372 72,286
PEP 38720 15,278 - 15,278 -
New licenses 58,497 - 58,497 1,980
Total New Zealand 737,960 - 737,960 74,266
China
Nanling-Wuwei Basins 190,994 - 190,994 2,922
Papua New Guinea
PPL 192 110,049 - 110,049 5,990
Total Unproven 1,039,003 - 1,039,003 83,178
$1,665,572 $147,814 $1,517,758 $83,178
Subject to Auditors' Report dated October 17, 1997
F-9
70
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 3 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
a) PEP 38328
The Company has a 40% participating interest in Petroleum
Exploration Permit 38328 ("PEP 38328") located in New Zealand.
PEP 38328 grants the exclusive right to explore for petroleum for
an initial term of 5 years commencing July 1, 1996, renewable for
a further 5 years over one half of the original area, and the
exclusive right to apply for a 40 year production permit in the
event of a petroleum discovery.
During the first year, the Company and its co-participants
completed a work program which included:
i) reprocessing existing seismic data over the Kereru
prospect;
ii) acquiring, processing and interpreting a minimum of
eight km of new seismic data; and
iii) drilling one exploration well,
after which the participants must commit to an ongoing work
program for the remainder of the term or surrender PEP 38328.
In December 1996, the Company completed the drilling of an
exploration well in the PEP 38328 area (the "Kereru-1 Well").
By an agreement dated November 1, 1996, Boral Energy
Resources Limited ("Boral") acquired a 20% participating interest
in PEP 38328 from the Company by funding a disproportionate share
of costs associated with the drilling of the Kereru-1 Well up to
and including the plugging and abandonment of the Kereru-1 Well.
Trans-Orient Petroleum Ltd. ("Trans-Orient"), a company with
certain common directors, acquired a 10% participating interest
in PEP 38328 from the Company by similarly funding 20% of all
costs associated with the drilling of the Kereru-1 Well.
Subject to Auditors' Report dated October 17, 1997
F-10
71 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 3 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
b) PEP 38330
The Company has a 34% participating interest in Petroleum
Exploration Permit 38330 ("PEP 38330") located in New Zealand.
PEP 38330 grants the exclusive right to explore for petroleum for
an initial term of 5 years commencing July 1, 1996, renewable
for a further 5 years over one half of the original area, and the
exclusive right to apply for a 40 year production permit in the
event of a petroleum discovery.
The Company and its co-participants are required to complete
a work program as follows:
i) reviewing existing seismic data and reprocessing and
interpreting a minimum of 80 km of seismic data during the first
year; and
ii) acquiring, processing and interpreting a minimum of 12
kilometers of new seismic data and undertaking a structural
review of PEP 38330 by the end of the second year; and
iii) acquiring, processing and interpreting a minimum of 60
km of new seismic data by the end of the third year,
after which the participants must surrender PEP 38330 or
commit to acquire, process and interpret a further 25 km of new
seismic data and to drill an exploration well by the end of the
fifth year.
c) PEP 38716
The Company has a 32.4% participating interest in Petroleum
Exploration Permit 38716 ("PEP 38716") located in New Zealand.
PEP 38716 grants the exclusive right to explore for petroleum for
an initial term of 5 years commencing January 30, 1996, renewable
for a further 5 years over one half of the original area, and the
exclusive right to apply for a 40 year production permit in the
event of a petroleum discovery.
During the first year and a half, the Company and its
co-participants completed a work program which included reprocessing
and interpreting a minimum of 250 km of existing seismic data and
acquiring, processing and interpreting 30 km of new seismic data.
The participants must commit by July 30, 1997 to drill an
exploration well by July 30, 1998 or surrender PEP 38716.
Subject to Auditors' Report dated October 17, 1997
F-11
72 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 3 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
c) PEP 38716 (Cont'd)
Durum Energy Corp. ("Durum"), a company with a common
director, has a 6% participating interest in PEP 38716.
d) PEP 38720
The Company has a 50% participating interest in Petroleum
Exploration Permit 38720 ("PEP 38720") located in New Zealand.
PEP 38720 grants the exclusive right to explore for petroleum for
an initial term of 5 years commencing September 2, 1996,
renewable for a further 5 years over one half of the original
area, and the exclusive right to apply for a 40 year production
permit in the event of a petroleum discovery.
During the first year, the Company and its co-participants
are required to complete a work program which includes
reprocessing and interpreting a minimum of 100 km of seismic data
after which the participants have the following options:
i) commit to drilling an exploration well by the end of
the second year; or
ii) acquire, process and interpret a minimum of 15 km of
new seismic data by the middle of the third year; or
iii) surrender PEP 38720.
The participants are required to drill at least one
exploration well by the end of the third year in order for PEP
38720 to remain in good standing.
Trans-Orient has a 50% participating interest in PEP 38720.
e) Ngatoro Oil Field
By a Sale and Purchase Agreement dated December 4, 1996 and
effective September 1, 1996, the Company acquired a 5%
beneficial interest in Petroleum Mining Permit 38148 ("Ngatoro
Oil Field") and a 4.45% beneficial interest in the surrounding
Petroleum Prospecting License 38706 through the purchase of
Ngatoro Energy Limited (formerly Minora Energy (New Zealand)
Limited) for $575,000 in Australian funds. All obligatory work
commitments have been completed.
Subject to Auditors' Report dated October 17, 1997
F-12
73 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 3 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
e) Ngatoro Oil Field (Cont'd)
The Ngatoro Oil Field includes four producing oil wells and
three shut in gas wells.
f) Nanling-Wuwei Blocks
By a Joint Study Agreement dated March 18, 1996 (the "Study
Agreement"), the Company acquired a 50% participating interest in
the Nanling and Wuwei Blocks, located in Anhui Province of the
People's Republic of China, from China National Oil and Gas
Exploration and Development Corp. ("CNODC"). Pursuant to the
Study Agreement, a detailed technical evaluation of the Blocks,
including seismic reprocessing and remapping, must be completed
by June 30, 1997.
During the term of the Study Agreement and for a further 180
days thereafter, the Company is entitled to negotiate with CNODC
for a Geophysical Survey Agreement or a Production Sharing
Contract covering the Blocks.
g) PPL 192
The Company has a 40% participating interest in Petroleum
Prospecting License No. 192 ("PPL 192") located in the Western
Province of Papua New Guinea. PPL 192 grants the exclusive right
to explore for petroleum for an initial six year term commencing
January 28, 1997, extendable for a further 5 year term over 50%
of the original area, and the right to enter into a Petroleum
Agreement upon a discovery. The Petroleum Agreement provides the
right to produce any oil and gas discovered for a period of up to
30 years from discovery, subject to a maximum 22.5% participating
interest that can be acquired by the Government of Papua New
Guinea.
The Company and its co-participants are required to complete
a work program as follows:
i) incur U.S.$100,000 during the first year on exploration
costs which includes reprocessing and interpreting a minimum of
200 km of existing seismic data; and
Subject to Auditors' Report dated October 17, 1997
F-13
74 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 3 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
g) PPL 192 (Cont'd)
ii) incur a further U.S.$100,000 during the second year on
exploration costs which includes field, environment, engineering
and economic analyses,
after which the participants can surrender PPL 192 or submit
proposals by the last two months of the second year for
exploration work for the third and fourth years which must
include, at a minimum, acquiring, processing and interpreting 50
km of new seismic data during the third year and drilling one
exploration well during the fourth year.
The participants can surrender PPL 192 by the last two
months of the fourth year or submit proposals for exploration
work for the fifth and sixth years which must include, at a
minimum, acquiring 400 km of new seismic data during the fifth
year and drilling one exploration well during the sixth year.
Trans-Orient and Durum each hold a 20% participating
interest in PPL 192, subject to regulatory acceptance.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are comprised as follows:
1996 1995
Accumulated Net Book Net Book
Cost Amortization Value Value
Office equipment $ 51,211 $ 7,435 $ 43,776 $ 2,544
Automobile 6,902 3,106 3,796 5,867
$ 58,113 $ 10,541 $ 47,572 $ 8,411
NOTE 5 - SHARE CAPITAL
a) Authorized Share Capital
The authorized share capital of the Company is 100,000,000
common shares without par value.
Subject to Auditors' Report dated October 17, 1997
75 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 5 - SHARE CAPITAL (Cont'd)
b) Issued Shares
Number of
Shares Amount
Balance - January 31, 1995 5,006,978 $ 5,087,160
Issued during the period for:
Exercise of share
purchase warrants 2,498,000 774,380
Balance - December 31, 1995 7,504,978 5,861,540
Issued during the period for:
Exercise of stock options 386,500 2,496,290
Stock subdivision on a 1.5 new for
one old basis 3,945,559 -
11,837,037 8,357,830
Exercise of stock options 1,103,250 7,663,801
Stock subdivision on a two new for
one old basis 12,940,111 -
25,880,398 16,021,631
Exercise of stock options 53,000 224,076
Private placement 1,000,000 3,030,000
Balance - December 31, 1996 26,933,398 $19,275,707
c) Subdivision of Share Capital
Effective April 15, 1996 the Company subdivided its share
capital on a 1.5 new for one old basis.
Effective May 31, 1996 the Company subdivided its share
capital on a 2 new for one old basis.
Subject to Auditor's Report dated October 17, 1997
F-15
76
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 5 - SHARE CAPITAL (Cont'd)
c) Subdivision of Share Capital (Cont'd)
At an Extraordinary General Meeting held on October 9, 1996
the shareholders of the Company granted to the board of directors
the discretion to implement a stock subdivision based on one of
three alternative ratios: a 3 new for one old basis, a 4 new for
one old basis or a 5 new for one old basis. The Company has yet
to implement the subdivision.
d) Incentive Stock Options
The following incentive stock options are outstanding at
December 31, 1996:
Number of Exercise Price Expiry Date
Common Shares Per Share
167,000 $0.84 July 13, 1997
1,082,000 $5.33 May 13, 1998
700,000 US$5.13 October 30, 1998
Subsequent to the year ended, the Company renegotiated the
exercise price and extended the expiry date for certain existing
incentive stock options. (See Note 12)
e) Share Purchase Warrants
The following share purchase warrants are outstanding at
December 31, 1996:
Number of Shares Price per Share Expiry Date
1,000,000 $3.03/$3.485 May 27, 1997/1998
Subject to Auditors' Report dated October 17, 1997
F-16
77 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 5 - SHARE CAPITAL (Cont'd)
f) Escrow Shares
There are 1,406,250 shares subject to escrow restrictions
and held in escrow by Pacific Corporate Trust Company ("Pacific
Corporate"), 830 - 625 Howe Street, Vancouver, British Columbia
pursuant to an agreement dated April 8, 1994. The escrow shares
were originally issued in accordance with Local Policy 3-07 of
the British Columbia Securities Commission. 1,361,250 shares are
owned by 437577 B.C. Ltd., a private company whose voting shares
are wholly owned by Alex Guidi. Mr. Guidi is a member of the
board of directors, chairman and promoter of the Company. Two
former directors own 45,000 shares and are by the terms of the
agreement dated April 8, 1994 obligated to transfer the escrow
shares held by them to 437577 B.C. Ltd. or surrender the shares
to the Company.
The agreement of April 8, 1994 provides that the beneficial
ownership of the common shares or any interest in them will not
be sold, assigned, hypothecated, alienated, released from escrow,
transferred within escrow or otherwise in any manner dealt with,
without the expressed consent, order or direction in writing from
the Executive Director, British Columbia Securities Commission,
except as may be required by the death or bankruptcy of any
shareholder. All voting rights attached to the escrowed shares
may be exercised by the registered owner and any dividends
declared on the common shares of the Company will similarly be
paid to the holders of the escrowed shares. The shares are
released from escrow on application to the Executive Director and
an assessment by the Executive Director of the progress of the
Company's business. If any shares are not released from escrow
before April 25, 1999, those shares are to be cancelled.
g) Other
On September 13, 1996 the shares of the Company were
delisted from the Vancouver Stock Exchange ("VSE"). At the time
the shares of the Company were delisted from trading through the
facilities of the VSE, the shares continued to be traded on the
OTC BB market and there was no interruption in the availability
of a public market for trading of the shares.
Subject to Auditors' Report dated October 17, 1997
F-17
78 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 6 - LOSS PER SHARE
Loss per share is calculated using the weighted-average number of
common shares outstanding during the period. Shares that are
held in escrow have been included in determining loss per share.
For the purpose of calculating the weighted average number of
shares outstanding, stock splits and stock consolidations are
deemed to occur at the beginning of the period and are applied
retroactively to the preceding periods.
The weighted average number of shares outstanding used to
calculate loss per share are as follows:
December 31, 1996 25,279,799
December 31, 1995 16,840,440
January 31, 1995 13,331,199
NOTE 7 - RELATED PARTY TRANSACTIONS
The following are related party transactions not disclosed
elsewhere in these financial statements.
a) Accounts Payable
Included in accounts payable as at December 31, 1996 is an
amount of $8,021 (December 31, 1995 - $59,916) due to a company
with a common director.
Included in accounts receivable as at December 31, 1996 is
an amount of $555 (December 31, 1995 - accounts payable of
$16,623) due from a company with certain common directors.
b) Consulting and Management Agreements
The Company is of the view that the amounts paid for
services provided by related parties approximates what the
Company would pay to unrelated parties for the same services.
During the 1996 fiscal year, the Company paid $109,069
(December 31, 1995 fiscal period - $40,068) in consulting fees to
a director of the Company. The director occupied the office of
president and was responsible for the management of the business
of the Company of acquisition, exploration and development of,
and production from, petroleum interests and manages the New
Zealand office of the Company.
Subject to Auditors' Report dated October 17, 1997
F-18
79 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 7 - RELATED PARTY TRANSACTIONS (Cont'd)
b) Consulting and Management Agreements (Cont'd)
A consulting agreement between the Company and a private
company owned by a former director of the Company requires a fee
of $2,500 per month. During the 1996 fiscal year, the Company
paid $20,500 (December 31, 1995 fiscal period - $27,500) to this
private company. This individual manages the general
administration of the Company, including internal corporate
affairs, public relations and personnel.
A management agreement between the Company and a private
company wholly-owned by a relative of a former director of the
Company requiring a fee of $2,500 per month was cancelled.
During the 1996 fiscal year, the Company paid $5,000 (December
31, 1995 fiscal period - $27,500) to this private company.
c) By a Strategic Alliance Agreement dated May 18, 1995, the
Company granted Durum Energy Corp. ("Durum") a company with a
common director, the right to acquire up to a 20% participating
interest in future exploration ventures undertaken by the Company
for a one year period, renewable annually. In return, Durum will
provide the Company with certain services and duties in
connection with the conduct of the business of the Company. This
agreement was cancelled during the year.
NOTE 8 - INCOME TAXES
There are no income taxes payable for the year ended December 31,
1996 and 1995.
The Company has approximately $2.1 million (1995 - $1.9 million)
of resource and other unused tax pools to offset future taxable
income.
In addition, the Company has non-capital losses of approximately
$552,825 available for future deduction from income. These
losses expire as follows:
1997 $ 33,247
1998 32,152
1999 79,630
2000 23,275
2001 52,731
2002 251,664
2003 80,126
$552,825
Subject to Auditors' Report dated October 17, 1997
80 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 8 - INCOME TAXES (Cont'd)
The benefits of these excess resource tax pools and non-capital
loss carryforwards have not been recognized in these financial
statements.
NOTE 9 - NAME CHANGE
On May 9, 1995 the name of the Company was changed from
Consolidated Newjay Resources Ltd. to Indo-Pacific Energy Ltd.
NOTE 10 - YEAR END CHANGE
During the 1995 fiscal period the Company changed its year end
from January 31 to December 31 effective December 31, 1995.
NOTE 11 - COMPARATIVE FIGURES
Certain of the prior period's comparative figures have been
reclassified to conform to the current period's presentation.
NOTE 12 - SUBSEQUENT EVENTS
The following events have occurred subsequent to the year-end:
a) Stock Options
(i) The Company granted director and employee incentive
stock options entitling the holders thereof to purchase the
following:
Number of Exercise Price
Common Shares Per Share Expiry Date
550,000 US$2.50 March 25, 1999
30,000 US$3.00 May 12, 1999
10,000 US$3.125 May 22, 1999
(ii) The Company renegotiated the exercise price of certain
existing incentive stock options to U.S. $2.50 per share. These
options now entitle the optionees to purchase up to 1,082,000
common shares at an exercise price of U.S. $2.50 per share until
May 13, 1998 and up to 700,000 common shares at an exercise price
of U.S. $2.50 per share until October 30, 1998.
Subject to Auditors' Report dated October 17, 1997
F-20
81 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 12 - SUBSEQUENT EVENTS (Cont'd)
a) Stock Options (Cont'd)
(iii) The Company has granted stock options the market
value of which at the date the options were granted exceeded the
exercise price by an aggregate of $98,604.
(iv) Stock options were exercised to purchase the following:
Number of Exercise Price
Common Shares Per Share Total Proceeds
25,000 $0.84 $ 20,950
250,000 US$2.50 US$625,000
4,000 US$3.00 US$ 12,000
v) The Company extended the expiry date of 142,000
existing stock options which entitled the holder to purchase
common shares at $0.84 per share from July 13, 1997 to December
31, 1997.
(vi) The Company received subscriptions for the purchase on
a private placement basis of 1,000,000 units of the Company ("the
Units") at U.S. $1.80 per Unit. Each Unit consists of one share
in the capital of the Company and one non-transferrable share
purchase warrant ("the Warrants"). Each Warrant entitles the
subscriber to purchase one additional share in the capital of the
Company at the price of U.S. $1.90 per share for the first year,
U.S. $2.00 per share for the second year, and U.S. $2.10 per
share for the third year.
(vii) Share purchase warrants were exercised to purchase
50,000 shares of the Company at a price of $3.485 per share for
total proceeds of $174,250.
b) Petroleum and Natural Gas Properties
(i) PEP 38332
The Company acquired a 42.5% participating interest in
Petroleum Explorations Permit 38332 ("PEP 38332") located in New
Zealand.
Subject to Auditors' Report dated October 17, 1997
F-21
82 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 12 - SUBSEQUENT EVENTS (Cont'd)
b) Petroleum and Natural Gas Properties (Cont'd)
(i) PEP 38332 (Cont'd)
The permit area is situated immediately south of PEP
38328 and is 1,012,000 acres in area. The permit term is for
five years, renewable for a further five years over 50% of the
license area. Any production permits granted will be for a term
of up to 40 years from the date of issue. The Crown in right of
New Zealand has reserved a royalty of five percent of net sales
revenue from the sale of petroleum products.
By December 24, 1998, the Company is required to
reprocess 100 km of existing seismic data, collect 25 km of new
seismic data, undertake photogeologic and field geological
mapping, complete an evaluation of the exploration potential of
the permit area and make a further work commitment or relinquish
the permit. By December 24, 1999, the Company is required to
collect 50 km of seismic data, complete an evaluation of the
exploration potential of the permit area and make a further work
commitment or relinquish the permit. By June 24, 2000, the
Company is required to drill one exploration well and submit a
further program of work for approval.
A regional seismic program has been completed over the
permit area. This and earlier data are being processed before a
decision on further exploration is made.
(ii) VIC/P39
The Company has acquired a 33.33% participating
interest in VIC/P39 located in Australia.
The permit comprises of 541,250 acres and has a term of
six years. The permit provides for certain minimum work
requirements. In the first year, the Company must reprocess
certain seismic data. In the second year, a 500 km seismic
survey must be completed. In the third year, an exploration well
must be drilled. The work requirements for the balance of the
permit are not mandatory. The estimated cost for the first three
years is Australian $7,500,000.
Subject to Auditors' Report dated October 17, 1997
F-22
83 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 12 - SUBSEQUENT EVENTS (Cont'd)
(iii) ACP19
The Company acquired a 65% participating interest in
ACP19 located in Australia.
The permit comprises of 364,500 acres and encompasses
the Cartier Trough and parts of the Ashmore Platform. The permit
has a term of six years. In the first three years of the permit,
the Company is required to carry out a program of seismic
reprocessing and acquisition, including the collection of 400 km
of seismic data, with an estimated cost of Australian $900,000.
(iv) PPL 38312
The Company acquired a participating interest of 10.5%
in PPL 38312, New Zealand. Under the terms of the license,
licensees are required to complete the following:
(a) before October 9, 1997, re-enter and complete the
drilling of Waitaria-1 to 1600 meters unless geological or
engineering constraints encountered while drilling make this
unreasonable; and
(b) before November 15, 1997, if a discovery is made
as a result of iv(a) above, assess the discovery and if
appropriate apply for an extension of the duration of the license
in order to undertake an appraisal work program.
(v) PEP 38256
The Company acquired a participating interest of 50% in
PEP 38256, Canterbury Area, New Zealand under a permit dated
August 25, 1997. The other participant is Trans-Orient Petroleum
(NZ) Limited. The permit is issued for a term of five years and
has an area of 11,183.17 square kilometers. At the end of the
third year, the participants must relinquish at least 50% of the
permit area. The Crown in right of New Zealand has reserved a
royalty of five percent of net sales revenue of any petroleum
products. Under the terms of the permit, the participants must:
(a) within 15 months of the commencement date of the
permit:
Subject to Auditors' Report dated October 17, 1997
F-23
84 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 12 - SUBSEQUENT EVENTS (Cont'd)
(v)(a) PEP 38256 (Cont'd)
(i) locate and analyze petroleum seeps within the
permit area;
(ii) model existing gravity data and acquire new
gravity data as required to provide proper control on
density models derived from gravity modelling;
(iii) acquire, model and interpret a minimum of ten
new magnetotelluric stations;
(iv) scan and process existing BP and Bounty seismic
data;
(v) as necessary and appropriate, complete surface
geological work on source and other sequences;
(vi) integrate reprocessed onshore and existing
offshore seismic data with wells and new data acquired;
and
either make a firm commitment by notice in writing
to the Secretary of Commerce to complete the work program
detailed in (b) below or surrender the permit;
(b) within 24 months of the commencement date of the
permit acquire, process and interpret 80 kilometers of new
seismic data and either make a firm commitment by notice in
writing to the Secretary of Commerce to complete the work program
detailed in (c) below or surrender the permit;
(c) within 30 months of the commencement date of the
permit acquire, process and interpret 120 kilometers of new
seismic data and either make a firm commitment by notice in
writing to the Secretary of Commerce to complete the work program
detailed in (d) below or surrender the permit;
(d) within 36 months of the commencement date of the
permit drill one exploration well to the lesser of 1200 meter or
economic basement unless geological or engineering constraints
encountered while drilling make this unreasonable and either
submit to the Secretary of Commerce a satisfactory work program
for the remainder of the permit term or surrender the permit.
c) Corporate Reorganization
The Company continued its jurisdiction of incorporation from
the Province of British Columbia to the Yukon Territory pursuant
to the Yukon Business Corporation Act.
Subject to Auditors' Report dated October 17, 1997
F-24
85 INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 13 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian
GAAP") which conform in all material respects with generally
accepted accounting principles in the United States ("U.S. GAAP")
except for the following differences:
1996 1995
a) Net loss reconciliation
Net loss under Canadian GAAP $ (213,483) $ (181,642)
Market price of shares in excess
of exercise price of option at
date options granted (697,923) (63,000)
Net loss under U.S. GAAP $ (911,406) $ (244,642)
b) Loss per share
Weighted average number of shares outstanding:
Under Canadian GAAP 25,279,799 16,840,440
Less escrow shares (1,406,250) (1,406,250)
Under U.S. GAAP 23,873,549 15,434,190
Loss per share
under U.S. GAAP $ (0.04) $ (0.02)
c) Balance Sheet Items
i) Share Capital
Under Canadian GAAP $19,275,707 $5,861,540
Additions
Market price of shares in excess
of exercise price of option
at date options granted 697,923 63,000
Cumulative historical
adjustments to date 306,750 243,750
Under U.S. GAAP $20,280,380 $6,168,290
Subject to Auditors' Report dated October 17, 1997
F-25
86
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1996 AND 1995
NOTE 13 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Cont'd)
1996 1995
c) Balance Sheet Items (Cont'd)
ii) Deficit
Under Canadian GAAP $(4,675,656) $(4,462,173)
Add - Loss under
Canadian GAAP 213,483 181,642
Deduct - Loss under U.S. GAAP (911,406) (244,642)
- cumulative historical
adjustments to date (306,750) (243,750)
Under U.S. GAAP $(5,680,329) $(4,768,923)
d) Statement of Changes in Financial Position
Deemed share proceeds
Under Canadian GAAP $ - $ -
Market price of shares in excess
of exercise price of option at
date option granted 697,923 63,000
Under U.S. GAAP $ 697,923 $ 63,000
Subject to Auditors' Report dated October 17, 1997
F-26
87
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
CONSOLIDATED SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE YEAR ENDED DECEMBER 31, 1996,
THE ELEVEN MONTH PERIOD ENDED DECEMBER 31, 1995
AND THE YEAR ENDED JANUARY 31, 1995
For the Eleven
For the Year Month Period For the Year
Ended Ended Ended
Note December 31, December 31, January 31,
Reference 1996 1995 1995
(Note 10)
EXPENSES
Accounting and audit $ 16,036 $ 5,175 $ 4,528
Consulting fees 7 37,240 16,500 18,000
Corporate relations
and development 70,765 26,822 4,125
Directors' fees 1,000 - -
Filing and transfer
agency fees 38,621 18,426 12,311
Foreign exchange loss 30,832 - -
Legal fees 53,795 17,017 30,937
Management fees 7 15,784 27,500 30,000
Office and miscellaneous 102,391 9,320 864
Printing 89,485 56,745 1,068
Rent 12,535 14,145 6,216
Telephone 34,001 12,014 -
Travel 21,236 18,375 -
Wages and benefits 32,024 11,637 -
Write-off of
incorporation costs 971 - -
$ 556,716 $ 233,676 $108,049
Subject to Auditors' Report dated October 17, 1997
F-27
88
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
DECEMBER 31, 1996
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
PROVED PETROLEUM AND NATURAL GAS RESERVE QUANTITIES
December 31, December 31, January 31,
1996 1995 1995
PETROLEUM RESERVES
Proved developed reserves, end of period
Oil (barrels) 70,000 - -
Gas (billion cubic feet) 0.17 - -
Proved reserves, end of period
Oil (barrels) 145,000 - -
Gas (billion cubic feet) 0.40 - -
All petroleum and natural gas reserves are located in New
Zealand.
Petroleum and natural gas reserves cannot be measured exactly.
Reserve estimates are based on many factors related to reservoir
performance which require evaluation by engineers interpreting
available data, as well as price, costs and other economic
factors. The reliability of these estimates at any point in time
depends on both the quality and quantity of the technical and
economic data, the production performance of the reservoirs as
well as extensive engineering judgment. Consequently, reserve
estimates are subject to revision as additional data becomes
available during the producing life of a reservoir. When a
commercial reservoir is discovered, proved reserves are initially
determined based on only limited data from the first well or
wells. Further drilling may better define the extent of the
reservoir and additional production performance, well tests and
engineering studies will likely improve the reliability of the
estimate.
Proved developed reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and
operating methods. Proved reserves are reserves which geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reserves under existing
economic and operating conditions. Reserves are considered
proved if economic producibility is supported by either
production or conclusive formation tests.
F-28
89
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
AS AT DECEMBER 31, 1996
(Unaudited - Prepared by Management)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED OIL AND GAS RESERVES
(Expressed in Canadian Dollars)
December 31, December 31, January 31,
1996 1995 1995
Future cash inflows $1,243,000 $ - $ -
Future production and
development costs to abandonment
at December 31, 2003 460,000 - -
Future income taxes - - -
783,000 - -
Discount at 10% annual rate
for estimated timing of
cash flows 79,000 - -
$ 704,000 $ - $ -
Undiscounted future net cash flows from proved producing oil and
natural gas reserves is largely based on information provided by
in-house reserve calculations. A discount factor of 10% was
applied to estimated future cash flows to compute the estimated
present value of proved oil and natural gas reserves. This
valuations procedure does not necessarily result in an estimate
of the fair market value of the Company's oil and natural gas
properties.
No provision for income taxes, as the Company has resource and
other unused tax pools to offset future taxable income.
The only change in the standardized measure of future cash flows
from production has been due to the purchase of Ngatoro Energy
Limited (formerly Minora Energy (NZ) Ltd.), a company whose sole
asset was a 5% interest in the producing Ngatoro oil field. This
interest is the only interest the Company holds in a proven oil
property. The standardized measure calculation for the property,
at December 31, 1996, was $704,000, as compared to the Net Book
Value of $479,000.
F-29
90 PART IV
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no changes in, or disagreements with, accountants on
accounting and financial disclosure.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS
ON FORM 8-K.
(a) Financial Statements are contained in Item 8 of this Form
10.
(b) No reports on Form 8-K have been filed during the last
quarter of the period covered by this report.
(c) Exhibits
Exhibit
Number Document Description
3.1 Certificate of incorporation as Pryme Energy
Resources Ltd. dated July 31, 1979.
3.2 Certificate of change of name from Pryme Energy
Resources Ltd. to Newjay Resources Ltd. dated August
23, 1985.
3.3 Certificate of change of name from Newjay Resources
Ltd. to Consolidated Newjay Resources Ltd. dated
August 25, 1993.
3.4 Certificate of change of name from Consolidated
Newjay Resources Ltd. to Indo-Pacific Energy Ltd.
dated May 9, 1995.
3.5 Articles of incorporation and memorandum of the
Registrant.
3.6 Articles of continuance dated September 10, 1997
under Business Corporations Act (Yukon).
3.7 Certificate of continuance dated September 25, 1997
under Business Corporations Act (Yukon).
3.8 Bylaws dated as at September 25, 1997.
10.1 Copy of permit dated August 19, 1997.
10.2 * Operating agreement with Asia Pacific Oil regarding PPL
38312. Filed via paper pursuant to a Hardship Exemption.
10.3 Copy of permit dated June 19, 1996.
91
10.4 Farm-in agreement dated November 14, 1996 with
Trans-Orient Petroleum Ltd. and Indo-Pacific Energy
(NZ) Ltd.
10.5 Farm-in agreement dated October 30, 1997 with Boral
Energy Resources (NZ) Ltd., Indo-Pacific Energy (NZ)
Ltd. and Moondance Energy Ltd.
10.6 Deed of Assignment and Assumption dated October 30,
1997 with Indo-Pacific Energy (NZ) Ltd., Moondance
Energy Ltd., Croft Exploration Ltd. and Boral Energy
Resources (NZ) Ltd.
10.7 Deed of Assignment and Assumption dated November 6,
1997 with Indo-Pacific Energy (NZ) Ltd., Moondance
Energy Ltd., Croft Exploration Ltd., Boral Energy
Resources (NZ) Ltd. and Trans-Orient Petroleum (NZ)
Ltd.
10.8 Deed of Withdrawal, Assignment and Assumption dated
November 7, 1997 with Indo-Pacific Energy (NZ) Ltd.,
Moondance Energy Ltd., Croft Exploration Ltd., Boral
Energy Resources (NZ) Ltd. and Trans-Orient
Petroleum (NZ) Ltd.
10.9 Deed of Withdrawal, Assignment and Assumption dated
November 7, 1997 with Indo-Pacific Energy (NZ) Ltd.,
Moondance Energy Ltd., Boral Energy Resources (NZ)
Ltd. and Trans-Orient Petroleum (NZ) Ltd.
10.10 Copy of permit 38330 dated June 4, 1996.
10.11 Copy of permit 38332 dated June 24, 1997.
10.12 Deed of Assignment dated October 10, 1997 with Indo-Pacific
Energy (NZ) Ltd., Boral Energy Resources
Limited, Boral Energy Resources (NZ) Limited, Trans
New Zealand Oil Company.
10.13 Copy of permit 38256 dated August 25, 1997.
10.14 Copy of permit 38148 dated December 23, 1996.
10.15 Copy of licence 38706 dated August 1, 1993.
10.16 Share Purchase Agreement with Shareholders of Minora
Energy (New Zealand) dated December 4, 1996.
10.17 Deed of Assignment and Assumption from Minister of
Energy (New Zealand), December 23, 1996.
92
10.18 * Operating agreement regarding PPL 38707 dated September 2,
1993. Filed via paper pursuant to a Hardship Exemption.
10.19 Copy of permit 38716 dated October 12, 1995.
10.20 * Operating agreement regarding PEP 38716 dated April 22,
1997. Filed via paper pursuant to a Hardship Exemption.
10.21 Assignment and novation agreement dated as of July
1, 1997 with Australian Worldwide Exploration NL.
10.22 Copy of permit 38720 dated September 2, 1996.
10.23 Copy of permit PEP 38723 dated October 30, 1997.
10.24 Copy of licence PPL 192 dated January 28, 1997.
10.25 Copy of permit AC P19.
10.26 Copy of permit 39.
10.27 Copy of permit WA-199-P.
10.28 Farmin agreement dated November 28, 1997 between Boral
Energy Resources Limited and Indo-Pacific Energy (Aust)
Pty. Ltd.
10.29 China-Joint Study Agreement of March 18, 1996 (50%).
27 Financial Data Schedule
99.2 Escrow agreement dated April 8, 1994 among the Pacific
Corporate Trust Company, the Registrant and certain
shareholders of the Registrant.
99.2 Form Incentive Stock Option Agreement.
99.3 * Letter granting continuing Hardship Exemption
* Filed via Continuing Hardship Exemption.
93 SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this to the Form 10 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Wellington, New Zealand, on this 9th day of January, 1998.
INDO-PACIFIC ENERGY LTD.
BY: /s/ Dr. David Bennett, President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Dr. David Bennett, as true and
lawful attorney-in-fact and agent, with full power of substitution,
for his and in his name, place and stead, in any and all capacities,
to sign any and all amendments to this registration statement, and to
file the same, therewith, with the Securities and Exchange
Commission, and to make any and all state securities law or blue sky
filings, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing
requisite or necessary to be done in about the premises, as fully to
all intents and purposes as he might or could do in person, hereby
ratifying the confirming all that said attorney-in-fact and agent, or
any substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10 Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
Signatures Title Date
/s/ Dr. David Bennett President, Chief January 9, 1998
Executive Officer
and member of the
Board of Directors
/s/ Alex Guidi Chairman of the January 8, 1998
Board of Directors
/s/ Alex Guidi Member of the January 8, 1998
John B. Holland Board of Directors
by his proxy
Alex Guidi
_____________________ Member of the ____________, 1998
Brad Holland Board of Directors
/s/ Mark Katsumata Secretary January 8, 1998
Mark Katsumata
94
EXHIBIT INDEX
Exhibit
Number Document Description
3.1 Certificate of incorporation as Pryme Energy Resources
Ltd. dated July 31, 1979.
3.2 Certificate of change of name from Pryme Energy Resources Ltd.
to Newjay Resources Ltd. dated August 23, 1985.
3.3 Certificate of change of name from Newjay Resources Ltd. to
Consolidated Newjay Resources Ltd. dated August 25, 1993.
3.4 Certificate of change of name from Consolidated Newjay
Resources Ltd. to Indo-Pacific Energy Ltd. dated May 9, 1995.
3.5 Articles of incorporation and memorandum of the Registrant.
3.6 Articles of continuance dated September 10, 1997 under Business
Corporations Act (Yukon).
3.7 Certificate of continuance dated September 25, 1997 under Business
Corporations Act (Yukon).
3.8 Bylaws dated as at September 25, 1997.
10.1 Copy of permit dated August 19, 1997.
10.2 * Operating agreement regarding PPL 38312 with Asia Pacific Oil.
Filed via paper pursuant to a Continuing Hardship Exemption.
10.3 Copy of permit dated June 19, 1996.
10.4 Farm-in agreement dated November 14, 1996 with Trans-Orient
Petroleum Ltd. and Indo-Pacific Energy (NZ) Ltd.
10.5 Farm-in agreement dated October 30, 1997 with Boral Energy
Resources (NZ) Ltd., Indo-Pacific Energy (NZ) Ltd. and Moondance
Energy Ltd.
10.6 Deed of Assignment and Assumption dated October 30, 1997 with
Indo-Pacific Energy (NZ) Ltd., Moondance Energy Ltd.,
Croft Exploration Ltd. and Boral Energy Resources (NZ) Ltd.
10.7 Deed of Assignment and Assumption dated November 6, 1997 with
Indo-Pacific Energy (NZ) Ltd., Moondance Energy Ltd., Croft
Exploration Ltd., Boral Energy Resources (NZ) Ltd. and Trans-Orient
Petroleum (NZ) Ltd.
10.8 Deed of Withdrawal, Assignment and Assumption dated November 7,
1997 with Indo-Pacific Energy (NZ) Ltd., Moondance Energy Ltd.,
Croft Exploration Ltd., Boral Energy Resources (NZ) Ltd. and
Trans-Orient Petroleum (NZ) Ltd.
10.9 Deed of Withdrawal, Assignment and Assumption dated November 7,
1997 with Indo-Pacific Energy (NZ) Ltd., Moondance Energy
Ltd., Boral Energy Resources (NZ) Ltd. and Trans-Orient Petroleum
(NZ) Ltd.
10.10 Copy of permit 38330 dated June 4, 1996.
10.11 Copy of permit 38332 dated June 24, 1997.
95
10.12 Deed of Assignment dated October 10, 1997 with Indo-Pacific Energy
(NZ) Ltd., Boral Energy Resources Limited, Boral Energy
Resources (NZ) Limited, Trans New Zealand Oil Company.
10.13 Copy of permit 38256 dated August 25, 1997.
10.14 Copy of permit 38148 dated December 23, 1996.
10.15 Copy of licence 38706 dated August 1, 1993.
10.16 Share Purchase Agreement with Shareholders of Minora Energy (New
Zealand) dated December 4, 1996.
10.17 Deed of Assignment and Assumption from Minister of Energy (New
Zealand), December 23, 1996.
10.18 * Operating agreement regarding PPL 38706 dated September 2, 1993.
Filed via paper pursuant to a Continuing Hardship Exemption.
10.19 Copy of permit 38716 dated October 12, 1995.
10.20 * Operating agreement regarding PEP 38716 dated April 22, 1997.
Filed via paper pursuant to a Continuing Hardship Exemption.
10.21 Assignment and novation agreement dated as of July 1, 1997 with
Australian Worldwide Exploration NL.
10.22 Copy of permit 38720 dated September 2, 1996.
10.23 Copy of permit PEP 38723 dated October 30, 1997.
10.24 Copy of licence PPL 192 dated January 28, 1997.
10.25 Copy of permit AC P19.
10.26 Copy of permit 39.
10.27 Copy of permit WA-199-P.
10.28 Farmin agreement dated November 28, 1997 between Boral Energy
Resources Limited and Indo-Pacific Energy (Aust) Pty. Ltd.
10.29 China-Joint Study Agreement of March 18, 1996 (50%).
27 Financial Data Schedule
99.1 Escrow agreement dated April 8, 1994 among the Pacific Corporate
Trust Company, the Registrant and certain shareholders of the
Registrant.
99.2 Form Incentive Stock Option Agreement.
99.3 * Letter granting Continuing Hardship Exemption.
* Filed via Continuing Hardship Exemption.