/FIRST AND FINAL ADD - TO299 - PrimeWest Energy Trust announces
first quarter 2004 results/ CALGARY, April 27
/PRNewswire-FirstCall/ -- Consolidated Balance Sheet
------------------------- (Unaudited) (Audited) Mar 31, Dec 31,
(millions of dollars) 2004 2003
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(Restated - Note 2) ASSETS Current assets Cash and short term
deposits $ 6.4 $ 2.5 Accounts receivable 67.3 65.4 Prepaid expenses
7.6 6.5 Inventory 2.5 2.1
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83.8 76.5 Cash reserved for site restoration and reclamation 8.7
8.2 Other assets and deferred charges 1.6 1.5 Deferred derivative
loss (Note 4) 3.4 - Property, plant and equipment 1,276.1 1,548.2
Goodwill 67.9 56.1
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$ 1,441.5 $ 1,690.5
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LIABILITIES AND UNITHOLDERS' EQUITY Current liabilities Accounts
payable $ 29.1 $ 26.7 Accrued liabilities 50.4 45.3 Accrued
distributions to unitholders 10.1 10.3
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89.6 82.3 Derivative liabilities (Note 4) 15.9 - Long-term debt
(Note 6) 299.9 250.1 Future income taxes 231.1 313.2 Asset
retirement obligation (Note 5) 19.7 19.7
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656.2 665.3 UNITHOLDERS' EQUITY Net capital contributions (Note 7)
1,584.7 1,565.9 Capital issued but not distributed 2.4 5.2
Long-term incentive plan equity 13.0 14.6 Accumulated income 5.9
219.1 Accumulated cash distributions (812.7) (771.6) Accumulated
dividends (8.0) (8.0)
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785.3 1,025.2
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$ 1,441.5 $ 1,690.5
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The accompanying notes form an integral part of these financial
statements. Consolidated Statements of Unitholders' Equity
(Unaudited) ------------------------- For the three months ended
Mar 31, Mar 31, (millions of dollars) 2004 2003
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(Restated - Note 2) Unitholders' equity, beginning of period $
1,019.6 $ 847.2 Adjustment to Unitholders' equity at beginning of
period to adopt: New Asset Retirement Obligation (Note 2) 5.6 - New
Oil and Gas Accounting Standard (Note 2) (233.3) - Net income for
the period 20.1 22.4 Net capital contributions 18.8 156.4 Capital
issued but not distributed (2.8) 0.2 Long-term incentive plan
equity (1.6) (0.2) Cash distributions (41.1) (49.8)
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Unitholders' equity, end of period $ 785.3 $ 976.2
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Consolidated Statements of Cash Flow (Unaudited)
------------------------- For the three months ended Mar 31, Mar
31, (millions of dollars) 2004 2003
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(Restated - Note 2) OPERATING ACTIVITIES Net income for the period
$ 20.1 $ 22.4 Add/(deduct): Items not involving cash from
operations Depletion, depreciation and amortization 41.7 52.0
Non-cash general & administrative 0.4 0.4 Non-cash foreign
exchange loss 1.9 - Accretion on asset retirement obligation 0.3
0.3 Future income taxes recovery (18.2) (10.3) Unrealized
derivative loss 12.3 -
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Cash flow from operations 58.5 64.8 Expenditures on site
restoration and reclamation (0.9) (0.1) Change in non-cash working
capital 1.2 (11.0)
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$ 58.8 $ 53.7
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FINANCING ACTIVITIES Proceeds from issue of Trust Units, net of
issue costs $ 2.8 $ 153.2 Net cash distributions to unitholders
(29.9) (47.1) Increase in bank credit facilities 38.1 75.0 Change
in non-cash working capital (0.2) 2.7
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$ 10.8 $ 183.8
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INVESTING ACTIVITIES Expenditures on property, plant &
equipment $ (31.5) $ (22.0) Corporate acquisitions (Note 3) (34.8)
(200.9) Acquisition of capital assets (3.7) (0.3) Proceeds on
disposal of property, plant & equipment 3.5 0.2 Increase in
cash reserved for future site restoration and reclamation (0.5)
(1.4) Change in non-cash working capital 1.3 6.8
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$ (65.7) $ (217.6)
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INCREASE IN CASH FOR THE PERIOD $ 3.9 $ 19.9 CASH (BANK OVERDRAFT)
BEGINNING OF THE PERIOD 2.5 (3.1)
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CASH END OF THE PERIOD $ 6.4 $ 16.8
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CASH INTEREST PAID $ 1.2 $ 2.1
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CASH TAXES PAID $ 1.0 $ -
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Consolidated Statements of Income (Unaudited) For the three months
ended ------------------------- (millions of dollars, Mar 31, Mar
31, except per Trust Unit amounts) 2004 2003
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(Restated - Note 2) REVENUES Sales of crude oil, natural gas and
natural gas liquids $ 110.5 $ 128.7 Transportation expenses (1.8)
(1.9) Crown and other royalties, net of ARTC (23.3) (32.7) Other
income 0.3 (0.1)
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85.7 94.0
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EXPENSES Operating 19.7 20.6 Cash general and administrative 4.2
3.8 Non-cash general and administrative 0.4 0.4 Interest 3.2 3.6
Accretion on asset retirement obligation 0.3 0.3 Unrealized loss on
derivatives 12.3 - Foreign exchange loss 1.7 - Depletion,
depreciation and amortization 41.7 52.0
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83.5 80.7
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Income before taxes for the period 2.2 13.3
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Income and capital taxes 0.3 1.2 Future income taxes recovery
(18.2) (10.3)
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(17.9) (9.1)
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Net income for the period $ 20.1 $ 22.4
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Net income per Trust Unit - basic $ 0.40 $ 0.53 Net income per
Trust Unit - diluted $ 0.40 $ 0.53
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Notes to Consolidated Financial Statements For the three months
ended March 31, 2004 (millions of dollars except per Trust
Unit/share amounts). All amounts are expressed in millions of
Canadian dollars unless otherwise indicated. 1. Significant
Accounting Policies ----------------------------------- These
interim consolidated financial statements of PrimeWest Energy Trust
have been prepared in accordance with Canadian generally accepted
accounting principles. The specific accounting principles used are
described in the annual consolidated financial statements of the
Trust appearing on pages 69 through 91 of the Trust's 2003 annual
report and should be read in conjunction with these interim
financial statements. 2. Changes in Accounting Policies
---------------------------------- Full Cost Accounting The
adoption of AcG-16 modifies how the ceiling test is performed
resulting in a two stage process. The first stage requires the
carrying amount of the cost centers to be tested for recoverability
using undiscounted future cash flows from proved reserves using
management's best estimate of forward indexed prices. When the
carrying amount of a cost center is not recoverable, the second
stage of the process will determine the impairment whereby the cost
center would be written down to its fair value. The second stage
requires the calculation of discounted future cash flows from
proved plus probable reserves. The fair value is estimated using
accepted present value techniques, which incorporate risks and
other uncertainties when determining expected cash flows. PrimeWest
has performed the ceiling test under AcG-16 as of January 1, 2004.
The impairment test was calculated using the consultant's average
prices at January 1 for the years 2004 to 2008 as follows:
Consultant's Average Price Forecasts Year
------------------------------------------------- 2004 2005 2006
2007 2008
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WTI ($U.S./bbl) 29.21 26.43 25.42 25.38 25.51 AECO ($Cdn/mcf) 5.90
5.33 4.98 4.95 4.92
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The ceiling test resulted in a before tax impairment of $308.9
million and an after tax impairment of $233.2 million. This write
down was recorded to accumulated income in the first quarter of
2004 with the adoption of AcG-16. Asset Retirement Obligation
Effective January 1, 2004, the Trust retroactively adopted the CICA
Handbook section 3110, "Asset Retirement Obligations". The new
standard requires the recognition of the liability associated with
the future site reclamation costs of tangible long-lived assets.
This liability would be comprised of the Trust's net ownership
interest in producing wells and processing plant facilities. The
liability for future retirement obligations is to be recorded in
the financial statements at the time the liability is incurred. The
asset retirement obligation is initially recorded at the estimated
fair value as a long-term liability with a corresponding increase
to property, plant and equipment. The depreciation of property,
plant and equipment is allocated to expense on the
unit-of-production basis. The liability is increased each reporting
period for the fair value of any new future site reclamation costs
and the corresponding accretion on the original provision. The
accretion is charged to earnings in the period incurred. The
provision will also be revised for any changes to timing related to
cash flows or undiscounted reclamation costs. Actual expenditures
incurred for the purpose of site reclamation are charged to the
asset retirement obligation to the extent that the liability exists
on the balance sheet. Differences between the actual costs incurred
and the fair value of the liability recorded are recognized to
earnings in the period incurred. The Trust previously estimated the
costs of dismantlement, removal, abandonment and site reclamation
on a unit-of-production basis over the remaining life of the
estimated proved reserves. This estimate was charged to earnings
with a corresponding offset to the accumulated site provision
liability on the balance sheet. The adoption of CICA Handbook
section 3110 allows for the cumulative effect of the change in
accounting policy to be recorded to accumulated income with
retroactive restatement of prior period comparatives. At January 1,
2004, this resulted in an increase to the asset retirement
obligation of $19.7 million (2003 - $15.3 million), an increase to
PP&E of $10.6 million (2003 - $9.0 million), a $5.6 million
(2003 - $0.04 million) increase to accumulated income, a decrease
of site restoration provision of $17.8 million (2003 - $6.2
million) and an increase to the future tax liability of $3.1
million (2003 - $(0.03) million). See Note 5 for the reconciliation
of the asset retirement obligation. Implementation of this
accounting standard did not affect the Trust's cash flow or
liquidity. Financial Derivatives Effective January 1, 2004, the
Trust has implemented CICA Accounting Guideline (AcG-13), "Hedging
Relationships", which is effective for fiscal years beginning on or
after July 1, 2003. AcG-13 addresses the identification,
designation, documentation and effectiveness of hedging
transactions for the purposes of applying hedge accounting. It also
established conditions for applying or discontinuing hedge
accounting. Under the new guideline, hedging transactions must be
documented and it must be demonstrated that the hedges are
sufficiently effective in order to continue accrual accounting for
position hedges with derivatives. The trust is not applying hedge
accounting to its hedging relationships. As of January 1, 2004, the
Trust recorded $6.0 million for the mark-to- market value of the
outstanding hedges as a derivative liability and a $6.0 million
deferred derivative loss, to be realized upon settlement of the
corresponding derivative instrument. The deferred loss at January
1, 2004 was comprised of a $3.9 million loss for crude oil, $2.1
million loss for natural gas, $0.6 million loss for interest rate
swaps and a gain of $0.6 million for electrical power. See Note 4
for the reconciliation of the derivative liability and deferred
derivative loss. The guideline requires that all derivative
instruments be measured at fair value and recorded on the balance
sheet as an asset or liability. AcG-13 also requires all changes to
fair value be recognized in earnings in the period incurred,
regardless of whether or not the contract has been settled. All
hedging contracts entered into by the Trust subsequent to January
1, 2004 have been recorded as either a deferred derivative asset or
liability on the balance sheet with a corresponding unrealized
hedging gain or loss on the income statement, respectively. 3.
Corporate Acquisition ------------------------- a) On March 16,
2004, PrimeWest Gas Corp. completed the acquisition of Seventh
Energy Ltd. Subsequent to the acquisition, Seventh Energy was
amalgamated with PrimeWest Gas Corp. The acquisition was accounted
for using the purchase method of accounting with net assets
acquired and consideration paid as follows:
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Net Assets Acquired at Assigned Values Consideration Paid ($
millions) ($ millions)
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Petroleum and natural gas assets $ 46.5 Goodwill 11.8 Working
capital (1.5) Long-term debt assumed (9.9) Office lease obligation
(0.1) Cash $ 34.6 Asset retirement obligation (0.5) Costs
associated Future income taxes (11.5) with acquisition 0.2
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$ 34.8 $ 34.8
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4. Derivative Liabilities --------------------------
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Derivative Liability ($ millions)
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Derivative Liability, January 1, 2004 (6.0) Derivative instruments
settled 3.3 Mark-to-market unrealized loss (13.2)
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Derivative Liability, March 31, 2004 $ (15.9)
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Deferred Derivative Loss ($ millions)
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Deferred Derivative Loss, January 1, 2004 (6.0) Derivative
instruments settled (2.6)
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Deferred Derivative Loss, March 31, 2004 $ (3.4)
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5. Asset Retirement Obligations --------------------------------
Management has estimated the total future asset retirement
obligation based on the Trust's net ownership interest in all wells
and facilities. This includes all estimated costs to dismantle,
remove, reclaim and abandon the wells and facilities and the
estimated time period during which these costs will be incurred in
the future. The following table reconciles the asset retirement
obligation associated with the retirement of oil and gas
properties:
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Asset Retirement Obligation ($ millions)
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Asset Retirement Obligation, January 1, 2003 $ 15.3 Liabilities
incurred 5.4 Liabilities settled (2.2) Accretion expense 1.2
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Asset Retirement Obligation, December 31, 2003 $ 19.7
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Liabilities incurred 0.1 Liabilities settled (0.9) Accretion
expense 0.3 Acquisition of Seventh Energy 0.5
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Asset Retirement Obligation, March 31, 2004 $ 19.7
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The undiscounted amount of estimated cash flows required to settle
the obligation is $121.2 million (2003 - $118.9 million). The
estimated cash flow has been discounted using a credit-adjusted
risk free rate of 7.0 percent and an inflation rate of 1.5 percent.
Although the expected period until settlement ranges from a minimum
of 7 years to a maximum of 50 years, the costs are expected to be
paid over an average of 34 years. These future asset retirement
costs will be funded from the cash reserved for site restoration
and reclamation. This cash reserve is currently funded at $0.50 per
boe from PrimeWest's operating resources. 6. Long-Term Debt
------------------ ------------------------- Mar 31, Dec 31, ($
millions) 2004 2003
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Bank credit facilities $ 136.0 $ 88.0 Senior secured notes 163.9
162.1
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$ 299.9 $ 250.1
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7. Unitholders' Equity ----------------------- PrimeWest Energy
Trust The authorized capital of the Trust consists of an unlimited
number of Trust Units.
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Number Trust Units of Units ($ millions)
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Balance, December 31, 2003 48,751,883 $ 1,537.9 Issued on exchange
of exchangeable shares 732,575 15.0 Issued pursuant to Distribution
Reinvestment Plan 83,999 2.1 Issued pursuant to the Premium
Distribution Plan 478,516 12.0 Issued pursuant to Long-Term
Incentive Plan 61,720 1.9 Issued pursuant to Optional Trust Unit
Purchase Plan 114,430 2.8
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Balance, March 31, 2004 50,223,123 $ 1,571.7
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The weighted average number of Trust Units and exchangeable shares
outstanding at March 31, 2004 was 50,483,218 (2003 - 42,124,111).
For purposes of calculating diluted net income per Trust Unit,
335,341 Trust Units (2003 - 366,238) issuable pursuant to the
Long-Term Incentive Plan were added to the weighted average number.
The per unit cash distribution amounts paid or declared reflects
distributions paid or declared to Trust Units outstanding on the
record dates. PrimeWest Exchangeable Class A Shares The
exchangeable shares are exchangeable into PrimeWest Trust Units at
any time up to March 29, 2010 based on an exchange ratio that
adjusts each time the Trust makes a distribution to its
unitholders. The exchange ratio, which was 1:1 on the date that the
exchangeable shares were first issued, is based on the total
monthly distribution, divided by the closing unit price on the
distribution payment date. The exchange ratio effective March 15,
2004 was 0.45885:1 and December 31, 2003 was 0.44302:1.
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Exchangeable Shares No. of shares ($ millions)
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Balance, December 31, 2003 3,041,123 $ 28.0 Exchanged for Trust
Units (1,633,766) (15.0)
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Balance, March 31, 2004 1,407,357 $ 13.0
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8. Long-Term Incentive Plan ---------------------------- Under the
terms of the Long Term Incentive Plan, a maximum of 1,800,000 Trust
Units are reserved for issuance pursuant to the exercise of Unit
Appreciation Rights (UARs) granted to employees of PrimeWest.
Payouts under the plan are based on total unitholder return,
calculated using both the change in the Trust Unit price as well as
cumulative distributions paid. The plan requires that a hurdle
return of 5% per annum be achieved before payouts accrue. UARs have
a term of up to six years and vest equally over a three-year
period, except for the members of the Board, whose UARs vest
immediately. The Board of Directors has the option of settling
payouts under the plan in PrimeWest Trust Units or in cash. To
date, all payouts under the plan have been in the form of Trust
Units. As at March 31, 2004
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Current return per UARs "in the Trust issued & UARs money"
Total Unit Year of Grant outstanding vested UARs equity dilution
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1998 grants 4,630 4,630 $ 49.87 $ 0.2 8,665 1999 grants 39,574
39,574 34.51 1.4 51,242 2000 grants 112,271 111,941 15.43 1.7
64,775 2001 grants 357,138 264,098 7.39 2.7 71,846 2002 grants
883,196 458,472 5.55 4.3 90,753 2003 grants 1,030,985 263,195 4.52
2.7 48,060 2004 grants 622,852 68,592 $ 0.11 - -
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Total grants 3,050,646 1,210,502 $ 13.0 335,341
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9. Cash Distributions ---------------------- For the three months
ended ------------------------- (millions of dollars, except for
per Mar 31, Mar 31, Trust Unit and number of units) 2004 2003
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Net income for the period $ 20.1 $ 22.4 Add back (deduct) amounts
to reconcile to distribution: Depletion, depreciation and
amortization 41.7 52.0 Cash retained from cash available for
distribution (15.9) (13.0) Contribution to reclamation fund (1.5)
(1.5) Non-cash general and administrative 0.4 0.4 Unrealized loss
on derivatives 12.3 - Non-cash foreign exchange loss 1.9 -
Accretion on asset retirement obligation 0.3 0.3 Future income
taxes recovery (18.2) (10.3)
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$ 41.1 $ 50.3
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Cash Distributions to Trust Unitholders $ 41.1 $ 49.8
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Cash Distributions per Trust Unit $ 0.82 $ 1.20
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10. Subsequent Event -------------------- On April 5, 2004
PrimeWest announced that it had entered into a Canadian bought deal
equity financing to sell 5.4 million units at a price of $26.30 per
unit, raising gross proceeds of $142 million. The transaction
closed on April 22, 2004. Trading Performance For the quarter ended
Mar 31/04 Dec 31/03 Sep 30/03 Jun 30/03 Mar 31/03
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TSX Trust Unit prices ($ per Trust Unit) High 28.35 28.15 26.80
27.75 27.34 Low 22.70 23.40 25.19 23.40 24.48 Close 26.65 27.56
25.19 25.04 24.51
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Average daily traded volume 256,922 202,661 149,148 234,477 184,428
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For the quarter ended Mar 31/04 Dec 31/03 Sep 30/03 Jun 30/03 Mar
31/03
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NYSE Trust Unit prices ($U.S. per Trust Unit) High 22.14 21.48
19.29 20.60 17.96 Low 17.31 18.67 18.08 15.97 16.05 Close 20.31
21.27 18.68 18.53 16.73
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Average daily traded volume 469,694 243,921 151,813 166,722 111,605
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Number of Trust Units outstanding including exchangeable shares
(millions of units) 50.87 50.10 49.52 45.99 45.43
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Distribution paid per Trust Unit $0.82 $0.96 $0.96 $1.20 $1.20
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Total Compound Annual Return (%)(1) Year to Date One Year Three
Year Five Year
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PrimeWest -0.2% 28.0% 12.9% 30.4% TSX S&P 4.9% 26.7% -1.0% 6.5%
S&P 500 1.7% 5.8% -8.6% -3.9% S&P TSX Canadian Energy Trust
Index 2.1% 45.7% - - (1) Total return (equal sign) unit price plus
distributions re-invested END FIRST AND FINAL ADD DATASOURCE:
PrimeWest Energy Trust CONTACT: PRNewswire - April 27
Copyright