VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 11, 2009) -
The following report is available on tsx.com at the following web page:
http://www.tsx.com/en/news_events/media_kit.html
Trading was very heavy on a volume of 226.5 million shares worth 92.8 million dollars.
There were 399 advances, 357 declines and 515 issues unchanged.
The S&P/TSX Venture Composite Index closed up 8.81 at 1353.94
Most Active Issues by Volume Volume Name Symbol Close Change 13,314,850 Gold Wheaton Gold Corp GLW $ 0.295 $0.005 7,212,980 Stem Cell Therapeutics Corp. SSS $ 0.155 -$0.025 6,412,008 Avion Gold Corporation AVR $ 0.435 $0.005 3,821,174 Result Energy Inc. RTE $ 0.315 -$0.025 3,577,200 United Reef Limited URP $ 0.025 -$0.005 3,216,618 Global Hunter Corp. old BOB $ 0.065 -$0.005 3,114,700 Colonia Energy Corp. CLA $ 0.245 $0.095 3,092,832 Great Quest Metals Ltd. GQ $ 0.065 $0.020 2,741,250 iseemedia inc. IEE $ 0.190 -$0.030 2,686,680 Amador Gold Corp. AGX $ 0.090 $0.010 Most Active Securities by Value Value Security Name Symbol Close Change $8,591,282 Coastal Energy Company CEN $ 5.180 $0.180 $3,830,003 Gold Wheaton Gold Corp GLW $ 0.295 $0.005 $3,099,240 San Gold Corporation SGR $ 3.000 $0.020 $2,869,016 Avion Gold Corporation AVR $ 0.435 $0.005 $2,457,129 Intl Tower Hill Mines Ltd. ITH $ 6.500 $0.000 $2,064,651 Energold Drilling Corp. EGD $ 2.610 $0.160 $1,973,426 Terrane Metals Corp TRX $ 1.010 $0.040 $1,733,108 SouthGobi Energy Resources Ltd. SGQ $14.200 -$0.150 $1,291,611 Stem Cell Therapeutics Corp. SSS $ 0.155 -$0.025 $1,275,400 Result Energy Inc. RTE $ 0.315 -$0.025
NEX Closing Summary for November 11, 2009
Trading was moderate on a volume of 1.53 million shares worth 0.28 million dollars.
There were 6 advances, 6 declines and 32 issues unchanged.
Most Active Issues by Volume
Volume Name Symbol Close Change
299,750 Border Petroleum Inc BOP.H $ 0.050 $0.005
288,000 Novus Gold Corp NOV.H $ 0.310 $0.050
196,000 Mira Resources Corp MRP.H $ 0.330 $0.000
181,000 P2P Health Systems Inc. PTP.H $ 0.285 -$0.010
100,000 Touchstone Resources Ltd US$ TCH.H $ 0.050 $0.020
94,000 Strategic Resource Acquisition SRZ.H $ 0.010 -$0.005
Corpora
60,000 International Kirkland IKI.H $ 0.010 $0.000
Minerals Inc
50,000 Manor Global Inc. GGV.H $ 0.010 -$0.090
30,000 Global Tree Technologies Inc GTT.H $ 0.015 $0.005
28,244 AirIQ Inc. IQ.H $ 0.010 $0.000
Most Active Securities by Value
Value Security Name Symbol Close Change
$84,810 Novus Gold Corp NOV.H $ 0.310 $0.050
$66,020 Mira Resources Corp MRP.H $ 0.330 $0.000
$52,640 P2P Health Systems Inc. PTP.H $ 0.285 -$0.010
$17,773 Coventree Inc COF.H $ 4.040 $0.140
$14,988 Border Petroleum Inc BOP.H $ 0.050 $0.005
$11,715 Newstrike Capital Inc NES.H $ 0.460 $0.010
$8,981 Eacom Timber Corporation ETR.H $ 0.520 -$0.080
$6,500 Westward Explorations Ltd. WWE.H $ 0.260 $0.000
$5,259 Touchstone Resources Ltd US$ TCH.H $ 0.050 $0.020
$1,606 Atlanta Gold Inc ATG.H $ 0.155 -$0.020
NOTE: This document is for information purposes only and is not an invitation to purchase any securities listed on TSX Venture Exchange and/or NEX. While the information herein is collected and compiled with care, neither TSX Venture Exchange Inc., TSX Inc. nor any of their respective affiliated companies represents, warrants or guarantees the accuracy or the completeness of the information. This information is provided with the express condition, to which by purchasing or making use thereof you expressly consent, that no liability shall be incurred by TSX Venture Exchange Inc., TSX Inc. and/or any of its affiliates as a result of any use or reliance upon this information.
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FOR FURTHER INFORMATION PLEASE CONTACT:
TSX Venture Exchange - Closing Market Report
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Source: TSX Venture Exchange - Closing Market Report
CALGARY, ALBERTA--(Marketwire - Nov. 11, 2009) - Zargon Energy Trust (TSX: ZAR.UN) (TSX: ZOG.B)
FINANCIAL & OPERATING HIGHLIGHTS
Three Months Ended Nine Months Ended
September 30, September 30,
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Percent Percent
(unaudited) 2009 2008 Change 2009 2008 Change
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Financial
Income and Investments
($ millions)
Petroleum and natural gas
revenue 40.96 66.35 (38) 108.77 188.25 (42)
Funds flow from operating
activities 22.84 29.75 (23) 61.61 86.51 (29)
Cash flows from operating
activities 23.30 33.58 (31) 60.97 85.29 (29)
Cash distributions 12.22 9.87 24 33.51 29.13 15
Net earnings 4.47 40.05 (89) 2.28 40.09 (94)
Net capital expenditures 29.32 17.47 68 91.72 103.36 (11)
Per Unit, Diluted
Funds flow from operating
activities ($/unit) 0.90 1.42 (37) 2.67 4.21 (37)
Cash flows from operating
activities ($/unit) 0.92 1.60 (43) 2.64 4.15 (36)
Net earnings ($/unit) 0.20 2.20 (91) 0.11 2.24 (95)
Cash Distributions ($/trust
unit) 0.54 0.54 - 1.62 1.62 -
Balance Sheet at Period End
($ millions)
Property and equipment, net 431.72 385.37 12
Bank debt 77.05 74.95 3
Unitholders' equity 258.05 203.00 27
Total Units Outstanding at
Period End (millions) 25.93 21.05 23
Operating
Average Daily Production
Oil and liquids (bbl/d) 5,382 4,367 23 4,911 4,263 15
Natural gas (mmcf/d) 28.23 29.84 (5) 28.20 29.61 (5)
Equivalent (boe/d) 10,088 9,340 8 9,610 9,198 4
Equivalent per million trust
units (boe/d) 398 445 (11) 413 446 (7)
Average Selling Price (before
the impact of financial risk
management contracts)
Oil and liquids ($/bbl) 64.72 109.34 (41) 56.51 102.15 (45)
Natural gas ($/mcf) 3.43 8.17 (58) 4.29 8.50 (50)
Wells Drilled, Net 10.3 7.7 34 20.7 22.0 (6)
Undeveloped Land at Period End
(thousand net acres) 594 464 28
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Notes:
Throughout this report, the calculation of barrels of oil equivalent ("boe")
is based on the conversion ratio that six thousand cubic feet of natural gas
is equivalent to one barrel of oil. For a further discussion about this
term, refer to the Management's Discussion and Analysis section in this
report.
For net capital expenditures, amounts include capital expenditures acquired
for cash, equity issuances, acquisition costs and net debt assumed on
corporate acquisitions.
Funds flow from operating activities is a non-GAAP term that represents net
earnings/losses and asset retirement expenditures except for non-cash items.
For a further discussion about this term, refer to the Management's
Discussion and Analysis section in this report.
Total units outstanding include trust units plus exchangeable shares
outstanding at period end. The exchangeable shares are converted at the
exchange ratio at the end of the period.
Average daily production per million trust units is calculated using the
weighted average number of units outstanding during the period plus the
weighted average number of exchangeable shares outstanding for the period
converted at the average exchange ratio for the period.
FINANCIAL & OPERATING HIGHLIGHTS
Zargon Energy Trust is pleased to report its financial results for the third quarter of 2009. Highlights from the three and nine months ended September 30, 2009, are noted below:
- Funds flow from operating activities was $22.84 million ($0.90 per diluted trust unit) in the 2009 third quarter compared to $20.92 million ($0.91 per diluted trust unit) in the 2009 second quarter and $29.75 million ($1.42 per diluted trust unit) in the 2008 third quarter.
- Third quarter 2009 production averaged 10,088 barrels of oil equivalent per day, six percent above the preceding quarter and eight percent above the corresponding quarter of 2008. Higher third quarter production volumes were primarily due to a full quarter of additional volumes provided by the acquisition of Masters Energy Inc. ("Masters") and flush production volumes from this summer's Williston Basin horizontal drilling program. For the 2009 third quarter, Zargon's production averaged 398 barrels of oil equivalent per day per million trust units outstanding compared to 413 barrels of oil equivalent per day per million trust units outstanding for the prior quarter and 445 barrels of oil equivalent per day per million trust units outstanding in the corresponding quarter of 2008.
- The Trust declared three monthly cash distributions of $0.18 per trust unit in the 2009 third quarter for a total of $12.22 million. These cash distributions were equivalent to a payout ratio of 60 percent of the Trust's third quarter funds flow from operating activities on a diluted trust unit basis and, after considering the effect of the exchangeable shares not receiving distributions, the distributions amounted to 53 percent of funds flow from operating activities.
- Reflecting a now expanded 2009 field related capital program of $48 million, the Trust's third quarter exploration and development capital expenditures (excluding corporate and property acquisitions and dispositions) increased 49 percent from the prior quarter to $12.75 million primarily as a result of increased drilling, completions and equipping of wells. For the first nine months of 2009, Zargon spent $34.09 million on field related capital expenditures and drilled a total of 20.7 net wells.
- On September 23, 2009, Zargon closed the acquisition of Churchill Energy Inc. ("Churchill") for a total consideration of approximately 0.555 million Zargon trust units, $0.11 million in cash and the assumption of approximately $6.85 million of net debt (including adjustments and transactions costs) for a total transaction value of approximately $16.31 million.
- Debt net of working capital (excluding unrealized risk management assets/liabilities and future income taxes) increased 12 percent from the prior quarter to $87.14 million at September 30, 2009, which represents approximately 48 percent of the Trust's available credit facilities at September 30, 2009. The Trust's balance sheet remains strong with a debt net of working capital to annualized funds flow from operating activities ratio of 1.06 times.
Production (1)
Oil and liquids production averaged 5,382 barrels per day in the 2009 third quarter, a 13 percent increase from the preceding quarter and a 23 percent increase from the corresponding 2008 quarter. The increase in production volumes was primarily due to a full quarter's contribution from the Masters corporate acquisition that was closed on April 29, 2009, as well as the completion and tie-in of five horizontal oil exploitation wells drilled over the summer primarily in the Williston Basin. In particular, the drilling results from our horizontal drilling program exploiting Frobisher ridges at Steelman, Saskatchewan have been particularly strong (with initial flush rates of more than 100 barrels of oil per day per well) and should provide further oil production gains during the balance of 2009.
Natural gas production volumes in the 2009 third quarter averaged 28.23 million cubic feet per day, a one percent decrease from the previous quarter and a five percent decrease from the corresponding period of 2008. The 2009 third quarter natural gas production decreased primarily due to natural declines and the shut-in of selected high cost natural gas properties during a period of exceptionally low natural gas prices. For the remainder of the year, we anticipate that the Trust's natural gas production volumes will remain relatively flat as natural declines are offset by production volumes from the Churchill acquisition and from recent tie-ins at the Kakut property in the Peace River Arch region of our West Central Alberta core area.
Over the last two years, Zargon has made a concerted effort to increase its oil volumes through a series of oil-weighted corporate acquisitions and related oil exploitation projects. Specifically, in the two year period since the 2007 third quarter, Zargon has successfully grown its oil volumes by 50 percent and has increased its oil production weighting from 42 percent to 53 percent.
Capital Expenditures (1)
Zargon's third quarter field capital program totalled $12.75 million, a 22 percent decrease from the 2008 third quarter field capital expenditures and a 49 percent increase from the prior quarter. During the quarter, Zargon drilled 12 gross wells (10.3 net) that resulted in 6.0 net oil wells and 4.3 net gas wells for a 100 percent success ratio. This oil exploitation focused drilling program included one Taber horizontal well in the Alberta Plains and three Steelman horizontal wells along with one horizontal well at Elswick in the Williston Basin. Also, during the quarter, Zargon drilled three Jarrow natural gas wells in the Alberta Plains, one step-out natural gas well at Kakut in the Peace River Arch area and one Pembina natural gas exploration well in West Central Alberta.
For the remainder of 2009, Zargon is planning on drilling three oil exploitation horizontal wells with two additional Frobisher ridge targets at Steelman in the Williston Basin and one Sunburst target at Taber in the Alberta Plains. Natural gas drilling will be limited to one Alberta Plains Jarrow natural gas development well.
Throughout 2009, Zargon has successfully redirected its business to emphasize the exploitation of oil-in-place or gas-in-place resources as enabled by periodic accretive acquisitions and focused reservoir management. Specifically, we have made good progress with our oil exploitation initiatives in the Williston Basin and Taber, Alberta properties along with last year's corporate acquisitions of Rival Energy Ltd. and Newpact Energy Corp. and this year's corporate acquisitions of Masters and Churchill. Furthermore, we continue to advance our detailed technical review of our Little Bow Alkaline Surfactant Polymer ("ASP") tertiary oil recovery initiative and look forward to making our final decision regarding project implementation for this Southern Alberta opportunity by the end of the first quarter of 2010.
In the third quarter of 2009, the purchase of 21 thousand net acres of Crown lands at an average price of $39 per acre and the addition of approximately 60 thousand net acres from the Churchill acquisition, allowed Zargon to increase its quarter end undeveloped land inventory to 594 thousand net acres, up 61 thousand net acres from the balance reported at the end of the 2009 second quarter. For the remainder of the year, Zargon will continue to be an active participant at Alberta Crown land sales during this period of low Crown land sale costs.
Zargon continues to take advantage of the industry's current lower property and corporate acquisition costs with the announcement and closing of the Masters and Churchill acquisitions. During this period of opportunity, Zargon will continue to use its strong balance sheet and solid cash flows augmented by substantial hedge gains to pursue additional property and corporate acquisitions.
Guidance (1)
In the August 12, 2009 press release announcing the 2009 second quarter results, Zargon provided updated production guidance of 9,800 barrels of oil equivalent per day for the remainder of 2009 (not including volumes from the pending acquisition of Churchill). This previous guidance had been premised on a 2009 capital budget of $37 million. Due to the combination of improved field and service costs, strong oil production netbacks and promising oil exploitation drilling results, Zargon elected to expand its Williston Basin and Taber horizontal drilling programs in addition to proceeding with an enhanced facility upgrade and modification program, thereby taking the 2009 field capital budget to $48 million. Supported by flush production volumes coming from our Steelman Frobisher ridge initiative, Zargon's third quarter production exceeded guidance by three percent and averaged 10,088 barrels of oil equivalent per day. With the addition of the late September Churchill acquisition, production volumes for the fourth quarter of this year are now anticipated to average (with approximately 400 barrels of oil equivalent per day of flush production) in excess of 10,400 barrels of oil equivalent per day.
For 2010, Zargon is providing preliminary guidance of 10,400 barrels of oil equivalent per day, which is based on a 2010 field capital program of $58 million that includes the drilling of 44 net wells. This field capital budget continues to emphasize oil exploitation projects in the Williston Basin and the Alberta Plains (South) as well as natural gas directed exploitation drilling in the West Central Alberta and Alberta Plains (North), which will be designed to take advantage of the improved economics provided by the Alberta Crown drilling incentives. On a preliminary basis, the field capital program will be allocated $26 million to the Williston Basin, $11 million to the West Central Alberta and $21 million to the Alberta Plains core areas. Finally, this budget and related guidance level does not include the potential ASP tertiary recovery project initiation expenditures, that may be authorized at the end of the 2010 first quarter, nor does it include any allowance for additional corporate or property acquisitions.
Zargon continues to be well positioned with a strong balance sheet, positive production growth momentum and an inventory of promising opportunities that has recently been augmented by corporate acquisitions. We are pleased that our historical conservative hedging, debt and distribution policies have enabled our organization to maintain the current monthly $0.18 per unit distribution for 48 consecutive months. To date, during this commodity price downturn, we have been able to maintain distributions primarily due to our substantial positive hedges and the strength of the forward commodity price strip, which indicates improved pre-hedge cash flows in 2010. Going forward we will continue to carefully balance our projected cash flows with the competing uses for our cash resources, while remaining committed to a 50 percent cash flow distributing model before the trust sunset date. Post December 2010, we remain committed to a partial distribution model that will evolve into a corporate structure that targets a stable dividend representing approximately 35 percent of cash flow in addition to providing our equity holders a modest level of per unit growth.
(1) Please see comments on "Forward-Looking Statements" in the Management's Discussion and Analysis section in this report.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis ("MD&A") is a review of Zargon Energy Trust's 2009 third quarter financial results and should be read in conjunction with the unaudited interim consolidated financial statements for the three and nine months ended September 30, 2009 and the audited consolidated financial statements and related notes for the year ended December 31, 2008. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). All amounts are in Canadian dollars unless otherwise noted. All references to "Zargon" or the "Trust" refer to Zargon Energy Trust and all references to the "Company" refer to Zargon Oil & Gas Ltd.
In the MD&A, reserves and production are commonly stated in barrels of oil equivalent ("boe") on the basis that six thousand cubic feet of natural gas is equivalent to one barrel of oil. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalent conversion method primarily applicable to the burner tip and does not represent a value equivalent at the wellhead.
The following are descriptions of non-GAAP measures used in this MD&A:
- The MD&A contains the term "funds flow from operating activities" ("funds flow"), which should not be considered an alternative to, or more meaningful than, "cash flows from operating activities" as determined in accordance with Canadian GAAP as an indicator of the Trust's financial performance. This term does not have any standardized meaning as prescribed by GAAP and, therefore, the Trust's determination of funds flow from operating activities may not be comparable to that reported by other trusts. The reconciliation between cash flows from operating activities and funds flow from operating activities can be found in the table below and in the consolidated statements of cash flows in the consolidated financial statements. The Trust evaluates its performance based on net earnings and funds flow from operating activities. The Trust considers funds flow from operating activities to be a key measure as it demonstrates the Trust's ability to generate the cash necessary to pay distributions, repay debt and to fund future capital investment. It is also used by research analysts to value and compare oil and gas trusts, and it is frequently included in published research when providing investment recommendations. Funds flow from operating activities per unit is calculated using the diluted weighted average number of units for the period.
Funds Flow from Operating Activities Reconciliation
Three Months Ended Nine Months Ended
September 30, September 30,
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($ millions) 2009 2008 2009 2008
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Cash flows from operating activities 23.30 33.58 60.97 85.29
Changes in non-cash operating
working capital (0.46) (3.83) 0.64 1.22
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Funds flow from operating activities 22.84 29.75 61.61 86.51
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- The Trust also uses the term "debt net of working capital" or "net debt". Debt net of working capital, as presented, does not have any standardized meaning prescribed by Canadian GAAP and may not be comparable with the calculation of similar measures for other entities. Debt net of working capital, as used by the Trust, is calculated as bank debt and any working capital deficit excluding unrealized risk management assets/liabilities and future income taxes.
- Operating netbacks per boe equal total petroleum and natural gas revenue per boe adjusted for realized risk management gains and/or losses per boe, royalties per boe and production costs per boe. Operating netbacks are a useful measure to compare the Trust's operations with those of its peers.
- Funds flow netbacks per boe are calculated as operating netbacks less general and administrative expenses per boe, interest and financing charges per boe, asset retirement expenditures per boe and current income taxes per boe. Funds flow netbacks are a useful measure to compare the Trust's operations with those of its peers.
References to "production volumes" or "production" in this document refer to sales volumes.
Forward-Looking Statements - This document offers our assessment of Zargon's future plans and operations as at November 11, 2009, and contains forward-looking statements including:
- our expectations for production referred to under the heading "Financial & Operating Highlights";
- our expectations for capital expenditures referred to under the heading "Financial & Operating Highlights";
- our expectations for royalties referred to under the heading "Financial Analysis";
- our expectations for production costs referred to under the heading "Financial Analysis";
- our expectations for interest expenses referred to under the heading "Financial Analysis";
- our expectations for current taxes referred to under the headings "Financial Analysis";
- our distribution policy referred to under the headings "Financial & Operating Highlights" and "Liquidity and Capital Resources";
- our expected sources of funds for distributions and capital expenditures referred to under the headings "Liquidity and Capital Resources" and "Financial & Operating Highlights";
- our expectations for future commodity pricing and operating results referred to under the headings "Financial & Operating Highlights" and "Outlook"; and
- our expectations for designing and implementing International Financial Reporting Standards referred to under the heading "Changes in Accounting Policies".
Such statements are generally identified by the use of words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof). By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including such as those relating to results of operations and financial condition, general economic conditions, industry conditions, changes in regulatory and taxation regimes, volatility of commodity prices, escalation of operating and capital costs, currency fluctuations, the availability of services, imprecision of reserve estimates, geological, technical, drilling and processing problems, environmental risks, weather, the lack of availability of qualified personnel or management, stock market volatility, the ability to access sufficient capital from internal and external sources and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel. Risks are described in more detail in our Annual Information Form, which is available on our website and at www.sedar.com. Forward-looking statements are provided to allow investors to have a greater understanding of our business.
You are cautioned that the assumptions, including among other things, future oil and natural gas prices; future capital expenditure levels; future production levels; future exchange rates; the cost of developing and expanding our assets; our ability to obtain equipment in a timely manner to carry out development activities; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition, our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and acquisition activities used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them. The forward-looking information contained in this document is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is that Zargon disclaims, except as required by law, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This MD&A has been prepared as of November 11, 2009.
SUMMARY OF SIGNIFICANT EVENTS IN THE THIRD QUARTER
- During the third quarter of 2009, the Trust realized funds flow from operating activities of $22.84 million ($0.90 per diluted trust unit) and declared total distributions of $12.22 million ($0.54 per trust unit) to unitholders. For Canadian income tax purposes, the distributions are currently estimated to be 100 percent taxable income to unitholders.
- Average field prices received (before the impact of financial risk management contracts) for oil and liquids and for natural gas increased eight percent to $64.72 per barrel and decreased nine percent to $3.43 per thousand cubic feet, respectively, compared to the second quarter of 2009.
- Third quarter production volumes were 10,088 barrels of oil equivalent per day, a six percent increase from the second quarter 2009 production levels.
- During the third quarter of 2009, the Trust drilled 12 gross wells (10.3 net) with a 100 percent success rate. Total field exploration and development capital expenditures (excluding property acquisitions and dispositions) were $12.75 million for the quarter compared to $8.56 million for the prior quarter.
- The Trust continues to maintain a strong balance sheet with a combined debt net of working capital (excluding unrealized risk management assets/liabilities and future income taxes) of $87.14 million, which represents approximately 48 percent of the Trust's available credit facilities at September 30, 2009.
- On September 23, 2009, Zargon closed the Arrangement Agreement to acquire all the issued and outstanding common shares of Churchill Energy Inc. ("Churchill") for a total consideration of approximately 0.555 million Zargon trust units, $0.11 million in cash and the assumption of approximately $6.85 million of net debt (including adjustments and transactions costs) for a total transaction value of approximately $16.31 million. This acquisition brought oil exploitation opportunities at Grand Forks and Brazeau, Alberta along with significant tax pools.
- On July 27, 2009, the Trust amended and renewed its syndicated committed credit facilities of $180 million. These facilities are available for general corporate purposes and the acquisition of oil and natural gas properties.
FINANCIAL ANALYSIS
Third quarter 2009 revenue of $40.96 million was 14 percent above the $35.84 million in the second quarter of 2009 and 38 percent below the $66.35 million in the third quarter of 2008. An eight percent increase in oil and liquids prices received and a six percent increase in production volumes were the primary reasons for the increased revenues when compared to the prior quarter amounts. Third quarter 2009 realized oil and liquids field prices averaged $64.72 per barrel before the impact of financial risk management contracts and were eight percent higher than the preceding quarter's $59.95 per barrel and were 41 percent lower than the $109.34 per barrel recorded in the 2008 third quarter. Zargon's crude oil field price differential from the Edmonton par price increased to $6.78 per barrel in the third quarter of 2009 compared to $5.95 per barrel in the second quarter of 2009. Natural gas field prices received averaged $3.43 per thousand cubic feet before the impact of financial risk management contracts in the third quarter of 2009 ($2.83 per thousand cubic feet before the impact of physical and financial risk management contracts), a nine percent decrease from the preceding quarter levels and 58 percent below the 2008 third quarter prices. Zargon's realized field prices differ from the benchmark AECO average daily price due to a combination of fixed price physical contracts (see note 11 to the interim unaudited consolidated financial statements) and from the impact of Zargon receiving AECO monthly index pricing for a portion of its natural gas production.
Pricing
Three Months Ended Nine Months Ended
September 30, September 30,
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Percent Percent
Average for the period 2009 2008 Change 2009 2008 Change
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Natural Gas:
NYMEX average daily spot
price ($US/mmbtu) 3.16 9.00 (65) 3.81 9.68 (61)
AECO average daily spot
price ($Cdn/mmbtu) 2.94 7.73 (62) 3.78 8.64 (56)
Zargon realized field price
before the impact of
financial risk
management contracts
($Cdn/mcf) 3.43 8.17 (58) 4.29 8.50 (50)
Zargon realized field price
before the impact of
physical and financial
risk management contracts
($Cdn/mcf) 2.83 7.80 (64) 3.62 8.53 (58)
Zargon realized field price
after the impact of
physical and financial
risk management contracts
($Cdn/mcf) 3.91 7.77 (50) 4.80 8.33 (42)
Zargon realized natural
gas field price
differential/(premium) (1) (0.49) (0.44) (0.51) 0.14
Zargon realized natural
gas field price
differential/(premium)
before the impact of
physical and financial risk
management contracts 0.11 (0.07) 0.16 0.11
Crude Oil:
WTI ($US/bbl) 68.30 117.98 (42) 57.00 113.27 (50)
Edmonton par price
($Cdn/bbl) 71.50 121.85 (41) 62.31 115.14 (46)
Zargon realized field
price before the impact
of financial risk
management contracts
($Cdn/bbl) 64.72 109.34 (41) 56.51 102.15 (45)
Zargon realized field price
after the impact of
financial risk management
contracts ($Cdn/bbl) 76.00 92.07 (17) 69.92 86.29 (19)
Zargon realized oil field
price differential (2) 6.78 12.51 5.80 12.99
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(1) Calculated as Zargon's realized field price before the impact of
financial risk management contracts ($Cdn/mcf) as compared to AECO
average daily spot price ($Cdn/mmbtu). Note: premiums may occur as a
result of the realization of fixed price physical contracts and the
impact of Zargon receiving AECO monthly index pricing for a portion of
its natural gas production.
(2) Calculated as Zargon's realized field price before the impact of
financial risk management contracts ($Cdn/bbl) as compared to Edmonton
par price ($Cdn/bbl).
Natural gas production volumes decreased by one percent in the third quarter of 2009 to 28.23 million cubic feet per day from 28.44 million cubic feet per day in the second quarter of 2009 and were five percent lower than the 2008 third quarter. When compared to the prior quarter, the 2009 third quarter decrease in natural gas production volumes were primarily a result of reduced production from the shut-in of high cost natural gas properties, facility and processing plant maintenance related outages and natural production declines, which did not offset production volume additions from the April 29, 2009 acquisition of Masters and the September 23, 2009 acquisition of Churchill. Oil and liquids production during the third quarter of 2009 was 5,382 barrels per day, which is 13 percent above the 2009 second quarter rate of 4,780 barrels per day and 23 percent above the third quarter of 2008 level. The year-over-year increase in oil and liquids production volumes was primarily due to an active oil exploitation drilling program and the post acquisition contribution of production volume additions coming from the Masters properties. On a barrel of oil equivalent basis, Zargon produced 10,088 barrels of oil equivalent per day in the third quarter of 2009, which represents a six percent increase from the 9,520 barrels of oil equivalent per day in the second quarter of 2009 and an eight percent increase when compared to the third quarter of 2008.
Production by Core Area
Three Months
Ended
September 30, 2009 2008
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Oil and Natural Oil and Natural
Liquids Gas Equivalents Liquids Gas Equivalents
(bbl/d) (mmcf/d) (boe/d) (bbl/d) (mmcf/d) (boe/d)
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Alberta Plains 2,115 16.42 4,853 1,313 19.44 4,554
West Central
Alberta 424 11.37 2,319 328 9.93 1,983
Williston
Basin 2,843 0.44 2,916 2,726 0.47 2,803
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5,382 28.23 10,088 4,367 29.84 9,340
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Nine Months
Ended
September 30, 2009 2008
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Oil and Natural Oil and Natural
Liquids Gas Equivalents Liquids Gas Equivalents
(bbl/d) (mmcf/d) (boe/d) (bbl/d) (mmcf/d) (boe/d)
----------------------------------------------------------------------------
Alberta Plains 1,759 16.89 4,573 1,240 19.68 4,521
West Central
Alberta 390 10.82 2,194 278 9.44 1,851
Williston
Basin 2,762 0.49 2,843 2,745 0.49 2,826
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4,911 28.20 9,610 4,263 29.61 9,198
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Zargon's commodity price risk management policy, which is approved by the Board of Directors, allows the use of forward sales, costless collars and other instruments up to a 24 month term and approximately 30 percent of the combined oil and natural gas working interest production in order to partially offset the effects of commodity price fluctuations. Zargon's management considers financial risk management contracts to be effective on an economic basis, but has decided not to designate these contracts as hedges for accounting purposes and, accordingly, for these contracts, an unrealized gain or loss is recorded based on the fair value (mark-to-market) of the contracts at the period end.
Specifically, in the 2009 third quarter, relatively higher oil and natural gas prices brought about a smaller net realized financial risk management gain totalling $6.83 million, consisting of a $1.24 million gain on natural gas contracts and a $5.59 million gain on oil contracts (foreign exchange contracts are considered in conjunction with the oil contracts), that compares to a $7.45 million realized net gain in the second quarter of 2009 and a $8.02 million realized net loss in the third quarter of 2008.
The 2009 third quarter unrealized risk management loss resulted from oil contract (including related foreign exchange contract) losses of $2.49 million, and unrealized risk management natural gas contract losses of $1.11 million resulting in a total loss of $3.60 million for the quarter, which compares to a net $13.65 million loss for the 2009 second quarter and a net $46.58 million gain in the third quarter of 2008. These non-cash unrealized risk management gains or losses are generated by the change over the reporting period in the mark-to-market valuation of Zargon's risk management contracts. Recent volatility in commodity prices has resulted in significant fluctuations in the mark-to-market amount of unrealized risk management assets and liabilities. The period-over-period changes in these valuations directly impact net earnings/losses. Zargon's commodity risk management positions are fully described in note 11 to the unaudited consolidated interim financial statements.
Royalties, inclusive of the Saskatchewan Resource Surcharge, totalled $7.57 million for the third quarter of 2009, an increase of 26 percent from the $5.99 million preceding quarter expense and a decrease of 44 percent from $13.46 million in the third quarter of 2008. The variations in royalty rates generally track changes in production volumes and prices. As a percentage of petroleum and natural gas revenue, royalty rates in 2008 tended to move in a relatively narrow range from 20 to 21 percent and were 20.3 percent in the third quarter of 2008. Commencing in 2009, the oil and natural gas royalty structure changed for Alberta production volumes (as disclosed in our 2008 Annual Financial Report). Reflecting the 2009 relatively lower commodity prices and the modified royalty structure, on a consolidated basis, the third quarter of 2009 royalties resulted in a rate of 18.5 percent (19.2 percent excluding revenue that does not attract royalty expenses) which compared to 16.7 percent (17.4 percent excluding revenue that does not attract royalty expenses) in the second quarter of 2009. For the remainder of 2009 and for calendar 2010 Zargon expects that its royalty rate will range from 18 to 20 percent, but will ultimately depend on the actual price received for our production.
On a unit of production basis, production costs of $13.18 per barrel of oil equivalent in the third quarter of 2009 compares with $13.08 per barrel of oil equivalent in the preceding quarter and $12.10 per barrel of oil equivalent in the third quarter of 2008. The increase in the 2009 third quarter costs (on a unit of production basis) primarily relates to seasonal repairs and annual maintenance programs and the relatively higher operating cost properties acquired in recent corporate acquisitions. Despite the impact of these higher cost oil-weighted properties, Zargon anticipates that its production costs can be maintained in the $13.00 to $13.50 range for the remainder of the 2009 year. For 2010, Zargon anticipates a moderation in the upward cost pressures, and anticipates maintaining operating costs in the $13.50 to $14.00 per barrel of oil equivalent range.
Operating Netbacks
Three Months Ended September 30, 2009 2008
----------------------------------------------------------------------------
Oil and Natural Oil and Natural
Liquids Gas Liquids Gas
($/bbl) ($/mcf) ($/bbl) ($/mcf)
----------------------------------------------------------------------------
Production revenue 64.72 3.43 109.34 8.17
Realized risk management gain/(loss) 11.29 0.48 (17.27) (0.39)
Royalties (13.54) (0.33) (22.82) (1.56)
Production costs (13.65) (2.11) (16.02) (1.44)
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Operating netbacks 48.82 1.47 53.23 4.78
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Nine Months Ended September 30, 2009 2008
----------------------------------------------------------------------------
Oil and Natural Oil and Natural
Liquids Gas Liquids Gas
($/bbl) ($/mcf) ($/bbl) ($/mcf)
----------------------------------------------------------------------------
Production revenue 56.51 4.29 102.15 8.50
Realized risk management gain/(loss) 13.41 0.51 (15.86) (0.16)
Royalties (11.41) (0.50) (21.00) (1.69)
Production costs (14.28) (2.04) (14.54) (1.48)
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Operating netbacks 44.23 2.26 50.75 5.17
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Measured on a unit of production basis, third quarter 2009 general and administrative expenses (net of recoveries) of $2.96 million were $3.19 per barrel of oil equivalent which compared to $4.29 in the prior quarter and $3.06 in the third quarter of 2008. The year-over-year increase in general and administrative expenses on a per unit of production basis is primarily due to additional office lease costs and the costs related to the expansion of Zargon's technical staff and consultants, as Zargon repositions itself for its expanded exploitation and acquisition initiatives. The second quarter 2009 costs included $0.53 per barrel of oil equivalent of one-time employment related charges.
Unit-based compensation in the third quarter of 2009 was $0.39 million, a 23 percent increase from the third quarter of 2008 and a 40 percent increase from the prior quarter. The increase is a result of unit rights granted late in the prior quarter pursuant to the Trust's new unit rights incentive plan as approved at Zargon's Annual and Special meeting of Unitholders held on April 22, 2009.
Zargon's borrowings are through its syndicated bank credit facilities. Interest and financing charges on these facilities in the 2009 third quarter were $0.80 million, $0.31 million higher than the previous quarter amount of $0.49 million and a decrease of $0.45 million from $1.25 million in the third quarter of 2008. This year-over-year decrease is primarily due to a slight decrease in average bank debt levels and lower average borrowing costs. In particular, bank debt levels were decreased in June 2009, when the Trust closed an offering of 2.365 million trust units on a bought deal basis at $15.00 per unit for total gross proceeds of $35.48 million ($33.44 million net of equity issuance expenses). Zargon's current available syndicated committed credit facilities and borrowing base are $180 million, with approximately 57 percent unutilized at September 30, 2009.
On July 27, 2009, Zargon amended and renewed its syndicated committed credit facilities of $180 million. The next renewal date is June 29, 2010. These facilities continue to be available for general corporate purposes and the potential acquisition of oil and natural gas properties. For the remainder of 2009 through to the 2010 renewal, it is anticipated that Zargon's borrowing costs will be higher as general debt pricing, standby fees and extension fees have risen considerably in the current economic environment. Interest rates fluctuate under the syndicated facilities with Canadian prime, US prime, and US base rates plus an applicable margin between 125 basis points and 275 basis points (2008 - zero and 32.5 basis points, respectively), as well as with Canadian banker's acceptance and LIBOR rates plus an applicable margin between 275 basis points and 425 basis points (2008 - 97.5 and 157.5 basis points, respectively).
Current income taxes for the 2009 third quarter were $0.68 million, and related primarily to the United States operations. When compared to prior periods, current income taxes increased $0.25 million from the 2009 second quarter and decreased $0.01 million relative to the third quarter of 2008. The decreased 2009 taxable income is primarily due to reduced oil prices. Total corporate tax pools and future tax benefits as at September 30, 2009, are approximately $295 million, which represents an increase of 57 percent from the comparable $188 million of tax pools available to Zargon at December 31, 2008, primarily a result of the tax pools acquired as part of the recent Masters and Churchill corporate acquisitions.
Trust Netbacks
Three Months Ended Nine Months Ended
September 30, September 30,
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($/boe) 2009 2008 2009 2008
----------------------------------------------------------------------------
Petroleum and natural gas revenue 44.13 77.22 41.46 74.69
Realized risk management gain/(loss) 7.35 (9.34) 8.35 (7.87)
Royalties (8.15) (15.66) (7.30) (15.16)
Production costs (13.18) (12.10) (13.27) (11.50)
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Operating netbacks 30.15 40.12 29.24 40.16
General and administrative (3.19) (3.06) (3.83) (2.96)
Interest and financing charges (0.86) (1.46) (0.73) (1.56)
Asset retirement expenditures (0.75) (0.17) (0.60) (0.27)
Current income taxes (0.74) (0.81) (0.60) (1.05)
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Funds flow netbacks 24.61 34.62 23.48 34.32
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Reflecting higher production volumes and the impact of recent corporate acquisitions, depletion and depreciation expense for the third quarter of 2009 increased seven percent to $16.82 million compared to the $15.68 million prior quarter expense and increased 10 percent from the $15.30 million 2008 third quarter expense. On a per barrel of oil equivalent basis, the depletion and depreciation rates were $18.12, $18.09 and $17.80 for the third and second quarters of 2009 and the third quarter of 2008, respectively. The 2008 calendar year depletion and depreciation rate was $17.61 per barrel of oil equivalent.
The provision for accretion of asset retirement obligations for the first nine months of 2009 was $1.99 million, a 24 percent increase compared to the first nine months of 2008. The year-over-year increase is due to changes in the estimated future liability for asset retirement obligations as a result of wells added through Zargon's drilling program inclusive of wells acquired/disposed of in the current year and wells acquired with the recent corporate acquisitions.
The recovery of future taxes for the third quarter of 2009 was $3.13 million compared to a recovery of $6.11 million in the prior quarter and an expense of $14.27 million in the third quarter of 2008. The 2009 third quarter recovery is primarily related to the quarter's unrealized risk management losses.
On October 31, 2006, the Federal Government announced tax proposals pertaining to taxation of distributions paid by trusts and the personal tax treatment of trust distributions. Currently, the Trust does not pay tax on distributions as tax is paid by the unitholders. On June 12, 2007, the Federal Government enacted these tax proposals, which would have resulted in taxation of distributions at the Trust level at a rate of 31.5 percent effective January 1, 2011. Subsequent 2007 fourth quarter legislation lowered this tax rate to 29.5 percent in 2011 and 28.0 percent beyond 2011. Prior to June 2007, the Trust estimated the future income tax on certain temporary differences between amounts recorded on its balance sheet for book and tax purposes to have a nil effective tax rate. On February 26, 2008, the Federal Government, in its Federal Budget, announced further changes to the specified investment flow through ("SIFT") tax rules. The provincial component of the SIFT tax will be based on the provincial rates where the SIFT has a permanent establishment rather than using a 13.0 percent flat rate. During the 2009 first quarter this tax rate change had been substantively enacted, and the future income tax impact has been recorded in the financial statements. Under the legislation, the Trust now estimates the effective tax rate on the post 2010 reversal of these temporary differences to be approximately 26.5 percent for 2011 and 25.0 percent thereafter. Until 2011, Zargon's future tax obligations are reduced as distributions are made from the Trust and, consequently, it is anticipated that Zargon's effective tax rate will continue to be low until that time.
On December 15, 2006, the Canadian Federal Department of Finance stated its intention to allow conversions of SIFT income trusts to a corporation without any adverse tax consequences to investors. On July 14, 2008, the Department of Finance released the draft legislative proposals to allow the conversion of these SIFT trusts into corporations. Zargon is currently reviewing and assessing this recent legislation and is considering its potential impact on the organization while Zargon's management develops its strategic plan beyond December 2010, which is the effective date of the new SIFT tax rules.
According to the January 19, 2005 CICA pronouncement, EIC-151 "Exchangeable Securities Issued by Subsidiaries of Income Trusts", Zargon Energy Trust must reflect the exchangeable securities issued by its subsidiary (Zargon Oil & Gas Ltd.) as a non-controlling interest. Prior to 2005, these exchangeable shares were reflected as a component of unitholders' equity. Accordingly, the Trust has reflected a non-controlling interest of $27.63 million on the Trust's consolidated balance sheet as at September 30, 2009. Consolidated net earnings have been reduced for net earnings attributable to the non-controlling interest of $0.57 million in the third quarter of 2009. In accordance with EIC-151 and given the circumstances in Zargon's case, each exchangeable share redemption is accounted for as a step-purchase, which, in the third quarter of 2009, resulted in an increase in property and equipment of $0.01 million, an increase in unitholders' equity and non-controlling interest of $0.58 million and a nominal increase in future income tax liability. Funds flow was not impacted by this change. The cumulative impact to date of the application of EIC-151 has been to increase property and equipment by $55.24 million, unitholders' equity and non-controlling interest by $66.22 million, increase future income tax liability by $18.21 million and allocate net earnings of $29.19 million to exchangeable shareholders.
Funds flow from operating activities in the 2009 third quarter of $22.84 million was $1.92 million, or nine percent higher than the preceding quarter and $6.91 million or 23 percent lower than the prior year third quarter. The increase in funds flow from the preceding quarter was primarily due to increased revenues (net of related royalties) as a result of higher oil prices and higher oil production volumes. Compared to the prior year third quarter, an eight percent increase in production volumes were more than offset by the 43 percent decline in commodity prices and rising production costs and general and administrative expenses. Funds flow on a per diluted trust unit basis was $0.90 for the third quarter of 2009, a one percent decrease from the prior quarter and a 37 percent decrease from the 2008 third quarter.
Net earnings were $4.47 million for the 2009 third quarter compared to $2.55 million of net losses in the preceding quarter and $40.05 million of net earnings in the third quarter of 2008. The net earnings track the funds flow from operating activities for the respective periods modified by asset retirement expenditures and non-cash charges, which include depletion and depreciation, unrealized risk management gains/losses, future income taxes/recoveries and non-controlling interest.
Capital Expenditures
Three Months Ended Nine Months Ended
September 30, September 30,
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($ millions) 2009 2008 2009 2008
----------------------------------------------------------------------------
Undeveloped land 1.47 1.67 4.00 6.05
Geological and geophysical (seismic) 0.63 0.43 2.22 2.93
Drilling and completion of wells 6.08 10.09 16.07 19.59
Well equipment and facilities 4.57 4.14 11.80 8.61
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Exploration and development 12.75 16.33 34.09 37.18
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Property acquisitions (1) 0.11 1.14 0.81 6.35
Property dispositions (0.11) - (0.11) (0.17)
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Net property acquisitions (1) - 1.14 0.70 6.18
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Corporate acquisitions assigned to
property and equipment (2) 16.31 - 56.34 59.85
----------------------------------------------------------------------------
Total net capital expenditures
excluding administrative
assets (1) (2) 29.06 17.47 91.13 103.21
Administrative assets 0.26 - 0.59 0.15
----------------------------------------------------------------------------
Total net capital expenditures (1) (2) 29.32 17.47 91.72 103.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts include capital expenditures acquired for cash and equity
issuances.
(2) Amounts include capital expenditures acquired for cash, equity
issuances, acquisition costs and net debt assumed on corporate
acquisitions.
CORPORATE ACQUISITIONS
On September 23, 2009, Zargon closed the Arrangement Agreement to acquire all the issued and outstanding common shares of Churchill Energy Inc. for a total consideration of approximately 0.555 million Zargon trust units, $0.11 million in cash and the assumption of approximately $6.85 million of net debt (including adjustments and transactions costs) for a total transaction value of approximately $16.31 million. This acquisition brought oil exploitation opportunities at Grand Forks and Brazeau, Alberta along with significant tax pools.
The results of operations of Churchill have been included in the consolidated financial statements since September 23, 2009. In relation to the third quarter 2009 results, the Churchill acquisition has contributed approximately 27 barrels of oil equivalent per day of production volumes to Zargon's total quarterly production volumes of 10,088 barrels of oil equivalent per day.
On April 29, 2009, Zargon closed the Arrangement Agreement to acquire all the issued and outstanding common shares of Masters Energy Inc. for a total consideration of approximately 1.475 million Zargon trust units, $5.70 million in cash and the assumption of approximately $13.29 million of net debt (including adjustments and transactions costs) for a total transaction value of approximately $40.03 million. This acquisition brought approximately 1,230 barrels of oil equivalent per day of production along with a significant Alkaline Surfactant Polymer (ASP) tertiary oil recovery opportunity at the Little Bow oil property in Southern Alberta. The results of operations of Masters have been included in the consolidated financial statements since April 29, 2009.
LIQUIDITY AND CAPITAL RESOURCES
Total net capital expenditures (including net property acquisitions and consideration and net debt assumed for corporate acquisitions) of $91.72 million in the first nine months of 2009 were 11 percent lower than the first nine months of 2008 which included the Rival Energy Ltd. and Newpact Energy Corp. acquisitions. Field expenditures of $34.09 million for the 2009 first nine months reflected a reduced exploration and development field program when compared to $37.18 million for the 2008 first nine months, representing an eight percent decrease. Drilling and completion expenses of $16.07 million were 18 percent lower than the prior year's first nine months amount of $19.59 million. During the first nine months of 2009, 20.7 net wells were drilled compared to 22.0 net wells in the first nine months of 2008. Field capital expenditures (excluding net property acquisitions) for the first nine months of 2009 were allocated to Alberta Plains - $13.25 million, West Central Alberta - $7.48 million and Williston Basin - $13.36 million. Field capital expenditures for the nine months ended September 30, 2009 are net of $1.44 million and $0.31 million in Alberta drilling credits in the respective Alberta Plains and West Central Alberta core areas. Alberta drilling credits are designed to encourage the execution of new drilling projects in Alberta and were announced in response to the slow down in drilling throughout the province of Alberta. The drilling credit is based on $200 per metre credit on total metres drilled with a cap based on production levels and Alberta Crown royalties paid.
On June 5, 2009, the Trust closed an offering of 2.365 million trust units on a bought deal basis at $15.00 per unit for total gross proceeds of $35.48 million ($33.44 million net of equity issuance costs). The net proceeds of the offering were used to reduce outstanding borrowings under existing credit facilities, and in turn will also be used to partially fund the 2009 capital expenditure program and for general corporate purposes.
Funds flow from operating activities in the 2009 first nine months of $61.61 million and proceeds from the issuance of trust units of $65.11 million (due to the acquisition of Masters and Churchill, the equity issuance and unit right exercises) funded the capital program including corporate and property acquisitions, the decrease in bank debt, the changes in working capital and the cash distributions to the unitholders.
At September 30, 2009, the Trust continues to maintain a strong balance sheet with a combined debt net of working capital (excluding unrealized risk management assets and liabilities and future income taxes) of $87.14 million, compared to $77.47 million at the end of the 2009 second quarter, which represents approximately 48 percent of the Trust's available credit facilities at September 30, 2009.
The volatility of oil and natural gas prices, the changes relating to Alberta royalties and Canadian income trust tax rules and recent global economic concerns have partially restricted the oil and natural gas industry's ability to attract new capital from debt and equity markets. Zargon's historically conservative strategy of maintaining a relatively low cash distribution to funds flow ratio and conservative debt levels should enable Zargon to maintain modified capital and distribution programs during periods of limited access to debt and equity capital.
Cash Distributions Analysis
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------------------------
($ millions) 2009 2008 2009 2008
----------------------------------------------------------------------------
Cash flows from operating activities 23.30 33.58 60.97 85.29
Net earnings 4.47 40.05 2.28 40.09
Actual cash distributions paid or
payable relating to the period (12.22) (9.87) (33.51) (29.13)
----------------------------------------------------------------------------
Excess of cash flows from operating
activities over cash distributions
paid 11.08 23.71 27.46 56.16
Excess (shortfall) of net earnings
over cash distributions paid (7.75) 30.18 (31.23) 10.96
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During the first nine months of 2009, Zargon has maintained a base monthly distribution of $0.18 per trust unit. Management monitors the Trust's distribution policy with respect to forecasted net cash flows, debt levels and capital expenditures. Zargon's cash distributions are discretionary to the extent that these distributions do not cause a breach of the financial covenants under Zargon's credit facilities and to the extent the Trust (non-consolidated) is not taxable. As a crude oil and natural gas Trust, Zargon's reserve base is depleted with production and Zargon, therefore, relies on ongoing exploration, development and acquisition activities to replace reserves and to offset production declines. The success of these exploration, development and acquisition capital programs, along with commodity price fluctuations and the Trust's ability to manage costs, are the main factors influencing the sustainability of the Trust's distributions.
For the three and nine months ended September 30, 2009, cash flows from operating activities (after changes in non-cash working capital) of $23.30 million and $60.97 million, respectively, exceeded cash distributions of $12.22 million and $33.51 million, respectively. For the three months and nine months ended September 30, 2008, cash flows from operating activities (after changes in non-cash working capital) of $33.58 million and $85.29 million, respectively, exceeded cash distributions of $9.87 million and $29.13 million, respectively.
For the three and nine months ended September 30, 2009, cash distributions of $12.22 and $33.51 million, exceeded net earnings of $4.47 and $2.28 million, respectively. For the three and nine months ended September 30, 2008, net earnings of $40.05 million and $40.09 million, respectively, exceeded cash distributions of $9.87 million and $29.13 million, respectively. Net earnings include significant non-cash charges, which were $19.06 million for the 2009 third quarter and $60.88 million for the nine months ended September 30, 2009, that do not impact cash flow. Net earnings also include fluctuations in future income taxes due to changes in tax rates and tax rules. In the instances where distributions exceed net earnings, a portion of the cash distri
BEIJING, Nov. 11 /PRNewswire-Asia-FirstCall/ -- Xinhua Sports & Entertainment Limited (the "Company" or "XSEL") (Nasdaq: XSEL), a leading sports and entertainment group in China, today announced its unaudited financial results for the third quarter ended September 30, 2009.
Third Quarter 2009 Highlights
-- Net revenue was $39.6 million
-- Adjusted EBITDA (non-GAAP) was $4.6 million
-- Adjusted net income (non-GAAP) was $3.4 million
-- Adjusted net income per ADS (non-GAAP) was $0.04
-- Net loss attributable to XSEL (GAAP) was $10.6 million
-- Net loss per ADS (GAAP) was $0.14
Ms. Fredy Bush, XSEL's CEO said, "Since late 2008, we have been taking significant strategic steps each quarter to position XSEL as the leading sports media company in China. We have focused on strengthening our distribution platforms, expanding our content portfolio and divesting of non-core assets. We have a series of key strategic initiatives we hope to finalize by year end that will bring us closer to our vision in 2010."
Mr. Andrew Chang, XSEL's CFO commented, "The net loss this quarter of $10.6 million included a $7.6 million non-cash charge related to our outstanding convertible loan facility. Under the new accounting rule EITF 07-5 adopted in 2009, we are required to remeasure the conversion feature of this loan at the end of each quarter. Due to the increase in share price between the second and third quarters of 2009, the conversion feature of the loan was remeasured at $3.1 million in the second quarter of 2009 and $10.7 million in the third quarter of 2009. As a result, we were required to record a non-cash fair value charge of $7.6 million in the third quarter of 2009."
Third Quarter 2009 Financial Results
Chart 1: Summary of financial results
3 months 3 months 3 months
ended ended ended 09Q3 vs 09Q3 vs
Sep 30, Sep 30, Jun 30, 08Q3 09Q2
In US$ millions 2009 2008 2009 Growth % Growth %
Net revenue(1) 39.6 49.6 38.8 -20% 2%
Adjusted EBITDA(2) 4.6 9.5 5.7 -51% -19%
Net loss attributable
to XSEL (10.6) (15.9) (2.1) 33% -392%
One-time items(3) 8.5 17.0 (1.2) N/A N/A
Net (loss) income
attributable to
XSEL before one-time
items (2.1) 1.1 (3.3) N/A 34%
Adjusted net income(2) 3.4 7.4 2.9 -54% 17%
(1) Due to the sale of Shanghai Hyperlink Market Research Co. Ltd
("Hyperlink"), the Company's research services business, in October
2009, the results of operations were separately reported as
"discontinued operations" and comparative numbers were reclassified
accordingly.
(2) Please refer to Chart 8 (Reconciliation of non-GAAP financial results)
for details of calculation of adjusted EBITDA (non-GAAP) and adjusted
net income (non-GAAP).
(3) One-time items are those that we believe are not indicative of future
performance. Due to the adoption of EITF 07-5 in 2009, we are required
to remeasure the fair value of the conversion feature of the
convertible loan (please refer to Note (9) to financial information
for details) every quarter. The one-time items of $8.5 million in the
third quarter of 2009 mainly represent a non-cash fair value charge of
$7.6 million on the conversion feature of the loan. Given the increase
in share price between the second and third quarters of 2009, the
conversion feature of the loan was remeasured at $3.1 million in the
second quarter of 2009 and $10.7 million in the third quarter of 2009.
As a result, we recorded a non-cash fair value charge of $7.6 million
in the third quarter of 2009. The fair value of the conversion feature
may have a recurring impact in subsequent periods.
Net Revenue
Net revenue for the third quarter of 2009 was $39.6 million, down 20% year-on-year from $49.6 million in the third quarter of 2008 or up 2% sequentially from $38.8 million in the second quarter of 2009.
Net Revenue by type and business group
Chart 2: Net revenue by type and business group
In US$ millions Broadcast Advertising Print Total
Net revenue:
Advertising
services 4.2 17.8 0.4 22.4
Content production 0.1 -- -- 0.1
Advertising sales 13.6 0.1 3.3 17.0
Publishing
services -- -- 0.1 0.1
Total net revenue 17.9 17.9 3.8 39.6
Broadcast Group
Net revenue for the Broadcast Group for the third quarter of 2009 was $17.9 million, down 1% year-on-year from $18.1 million in the third quarter of 2008 or down 6% sequentially from $19.0 million in the second quarter of 2009.
Chart 3: Revenue breakdown of the Broadcast Group
3 months 3 months 3 months 3 months
ended ended ended ended
Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth
In US$ millions 2009 2008 % 2009 2009 %
Broadcast:
Television 11.5 6.1 88% 11.5 11.3 2%
Radio 2.1 2.7 -23% 2.1 3.2 -35%
Mobile 4.2 3.3 27% 4.2 4.3 -2%
Production 0.1 6.0 -98% 0.1 0.2 -44%
Subtotal: 17.9 18.1 -1% 17.9 19.0 -6%
Advertising Group
Net revenue for the Advertising Group for the third quarter of 2009 was $17.9 million, down 37% year-on-year from $28.5 million in the third quarter of 2008 or up 8% sequentially from $16.6 million in the second quarter of 2009. The year-on-year decrease was primarily due to divestments and the economic downturn.
Chart 4: Revenue breakdown of the Advertising Group
3 months 3 months 3 months 3 months
ended ended ended ended
Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth
In US$ millions 2009 2008 % 2009 2009 %
Advertising:
Print/Online 8.0 15.5 -49% 8.0 7.6 5%
Outdoor/Other(1) 2.3 7.4 -69% 2.3 2.2 3%
BTL Marketing 7.6 5.6 35% 7.6 6.8 12%
Subtotal(2): 17.9 28.5 -37% 17.9 16.6 8%
(1) On December 31, 2008, the Company divested its Hong Kong based outdoor
advertising business, Convey, which contributed $5.7 million to net
revenue in the third quarter of 2008.
(2) Due to the sale of Hyperlink, the Company's research services business,
in October 2009, the historical results were reported as "discontinued
operations" for all periods presented. Hyperlink contributed $1.5
million to net revenue for the Advertising Group in the third quarter
of 2008.
Print Group
Net revenue for the Print Group for the third quarter of 2009 was $3.8 million, up 27% year-on-year from $3.0 million in the third quarter of 2008 or up 17% sequentially from $3.2 million in the second quarter of 2009.
Chart 5: Revenue breakdown of the Print Group
3 months 3 months 3 months 3 months
ended ended ended ended
Sep 30, Sep 30, Growth Sep 30, Jun 30, Growth
In US$ millions 2009 2008 % 2009 2009 %
Print:
Newspaper 2.0 1.5 39% 2.0 2.0 2%
Magazines 1.8 1.5 15% 1.8 1.2 42%
Subtotal: 3.8 3.0 27% 3.8 3.2 17%
Gross Profit
Gross profit for the third quarter of 2009 was $9.2 million, down 49% year-on-year from $17.9 million in the third quarter of 2008, or down 7% sequentially from $9.9 million in the second quarter of 2009. Adjusted gross profit (non-GAAP), defined as gross profit before amortization of intangible assets from acquisitions, for the third quarter of 2009 was $10.6 million, down 46% year-on-year from $19.6 million in the third quarter of 2008, or down 6% sequentially from $11.3 million in the second quarter of 2009. The year-on-year decrease of both gross profit and adjusted gross profit was a result of the factors previously described in the net revenue section. We provide the adjusted gross profit metric to break out the amortization of intangible assets from acquisitions charged within the cost of revenue. Chart 6 (Reconciliation for adjusted gross profit by business group) provides the breakdown of adjusted gross profit by business group. Due to the sale of Hyperlink, the Company's research services business, in October 2009, the results of operations were separately reported as "discontinued operations" and comparative numbers were reclassified accordingly.
Chart 6: Reconciliation for adjusted gross profit by business group
In US$ millions Advertising Broadcast Print Total
Gross Profit 5.0 1.5 2.7 9.2
Amortization of intangible assets
from acquisitions(1) -- 1.2 0.2 1.4
Adjusted gross profit 5.0 2.7 2.9 10.6
(1) Amortization of intangible assets from acquisitions includes
intangible assets such as trademarks, license rights, exclusive
advertising rights, licensing agreement, customer relationships and
non-compete agreements.
Operating Expenses
Operating expenses are comprised of selling and distribution expenses and general and administrative expenses. Operating expenses for the third quarter of 2009 were $10.4 million, down 31% year-on-year from $15.1 million in the third quarter of 2008, or up 13% sequentially from $9.1 million in the second quarter of 2009. The year-on-year decrease was due to implementation of cost cutting initiatives, divestments and a decrease in share-based compensation expenses.
Selling and distribution expenses for the third quarter of 2009 were $3.9 million, up 11% year-on-year from $3.5 million in the third quarter of 2008, or up 10% sequentially from $3.5 million in the second quarter of 2009.
General and administrative expenses for the third quarter of 2009 were $6.5 million, down 44% year-on-year from $11.6 million in the third quarter of 2008, or up 15% sequentially from $5.6 million in the second quarter of 2009. General and administration expenses for the third quarter of 2009 included $0.4 million of share-based compensation expenses.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA (non-GAAP), defined as net income (loss) attributable to XSEL before one-time items, other income (expense), taxes, depreciation, amortization of intangible assets from acquisitions, net income (loss) attributable to non-controlling interests and share-based compensation expenses, for the third quarter of 2009 was $4.6 million, down 51% year-on-year from $9.5 million in the third quarter of 2008, or down 19% sequentially from $5.7 million in the second quarter of 2009. The year-on-year decrease was mainly due to divestments and economic downturn.
We provide the adjusted EBITDA metric because it allows management, investors and others to evaluate and compare our core operating results without the impact of certain non-cash items or one-time items that we believe are not indicative of future performance.
Chart 7: Adjusted EBITDA by business group
In US$ millions Advertising Broadcast Print Total
Adjusted EBITDA by
business group 3.4 1.0 1.7 6.1
Less: net head office
expenses -- -- -- (1.5)
Adjusted EBITDA -- -- -- 4.6
Net Loss attributable to XSEL and Adjusted Net Income (non-GAAP)
Net loss attributable to XSEL for the third quarter of 2009 was $10.6 million, compared to a net loss of $15.9 million in the third quarter of 2008 and a net loss of $2.1 million in the second quarter of 2009. The primary reason for the sequential increase in net loss attributable to XSEL was a non-cash fair value charge of $7.6 million on the conversion feature of the convertible loan (please refer to Note (9) to financial information for details) in the third quarter of 2009. Due to the adoption of EITF 07-5 in 2009, we are required to remeasure the fair value of the conversion feature of the loan every quarter. Given the increase in share price between the second and third quarters of 2009, the conversion feature of the loan was remeasured at $3.1 million in the second quarter of 2009 and $10.7 million in the third quarter of 2009. As a result, we recorded a non-cash fair value charge of $7.6 million in the third quarter of 2009. The fair value of the conversion feature may have a recurring impact in subsequent periods.
Adjusted net income (non-GAAP), defined as net income (loss) attributable to XSEL before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest, for the third quarter of 2009 was $3.4 million, down 54% year-on-year from $7.4 million in the third quarter of 2008, or up 17% sequentially from $2.9 million in the second quarter of 2009. The year-on-year decrease was mainly due to divestments.
We provide the adjusted net income metric because it allows management, investors and others to evaluate our net income without the impact of possible add backs, deductions and certain material non-cash items or one-time items that we believe are not indicative of future performance.
Other Corporate Developments
On September 28, 2009, XSEL announced the licensing of the exclusive China distribution rights to the movie "More Than A Game" from Lionsgate Film. The movie stars LeBron James of the Cleveland Cavaliers and will be distributed later this year by China Film Group Corporation, the dominant film entertainment company in China.
On September 30, 2009, XSEL announced the signing of an additional agreement with Ultimate Fighting Championship, expanding on our exclusive television rights in China to include rights on mobile and internet platforms.
On October 20, 2009, the Company completed the disposal of the entire equity interests in Hyperlink, the Company's research services business, to INTAGE Inc., a Japan-based market research company, for a purchase price of 1,050,000,000 Japanese Yen (approximately US$10.7 million). The proceeds from the disposal were not reflected in the balance sheet for the third quarter of 2009.
On October 29, 2009, the Company sold 5,514,705 ADS at a price of $1.36 per ADS in a registered direct offering to several select institutional investors, representing gross proceeds of $7.5 million. Investors also received two series of warrants to purchase up to an aggregate of 14,889,703 class A common shares of the Company (equivalent to approximately 7,444,851 ADS). The Series A warrants to purchase up to 3,860,293 class A common shares (equivalent to approximately 1,930,146 ADS) have an initial exercise price of $0.975 per common share ($1.95 per ADS) and are exercisable at any time commencing six months after the closing date and on or prior to the fifth anniversary of this date. The Series B warrants to purchase up to 11,029,410 class A common shares (equivalent to 5,514,705 ADS) have an initial exercise price of $0.68 per common share ($1.36 per ADS) and are exercisable at any time commencing on the closing date and on or prior to the six month anniversary of the closing date.
On November 3, 2009, XSEL shareholders approved the election of Zheng Jingsheng and Harry Nam to serve on the board of directors.
Due to repositioning of the business to focus on the sports and entertainment sector, the Company has sold or may sell certain other non-core segments of its business which may give rise to potential significant non-cash impairment charges on goodwill and intangible assets.
Conference Call Information
Following the earnings announcement, XSEL's senior management will host a conference call on November 11, 2009 at 8:00PM (New York) / November 12, 2009 at 9:00AM (Beijing) to review the results and discuss recent business activities.
Interested parties may dial into the conference call at:
(US) +1 866 711 8198 or +1 617 597 5327
(UK) +44 207 365 8426
(Mainland China) + 86 10 800 130 0399
(Hong Kong) +852 3002 1672
Passcode: 95247814
A telephone replay will be available two hours after the call for one week at:
(US Toll Free) +1 888 286 8010
(International) +1 617 801 6888
Passcode: 74590319
A real-time webcast and replay will be also available at: http://www.xsel.com/en/investor-relations/webcast/
Contacts:
Media Contact
Ms. Joy Tsang
XSEL
Tel: +86-10-8567-6050, +86-136-2179-1577
Email: joy.tsang@xsel.com
IR Contact
Mr. Edward Liu
XSEL
Tel: +86-10-8567-6061
Email: edward.liu@xsel.com
Mr. Howard Gostfrand
American Capital Ventures
Tel: +1-305-918-7000, toll free +1-877-918-0774
Email: info@amcapventures.com
About XSEL
Xinhua Sports & Entertainment Limited ("XSEL;" NASDAQ: XSEL) is a leading sports and entertainment media company in China. Catering to a vast audience of young and upwardly mobile customers, XSEL is well-positioned in China with its unique content and access. Through its key international partnerships, XSEL is able to offer its target audience the content they demand - premium sports and quality entertainment. Through its Chinese partnerships, XSEL is able to deliver this content across a broad range of platforms, including television, the internet, mobile phones and other multimedia assets in China. Along with its integrated advertising resources, XSEL offers a total solution empowering clients at every stage of the media, process linking advertisers with China's young and upwardly mobile demographic.
Headquartered in Beijing, the Company employs more than 1,000 people and has offices and affiliates in major cities throughout China including Beijing, Shanghai, Guangzhou, Shenzhen and Hong Kong. The Company's American Depository Shares are listed on the NASDAQ Global Market (NASDAQ: XSEL). For more information, please visit http://www.xsel.com .
Safe Harbor
This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and other similar statements. Among other things, the quotations from management in this announcement, as well as XSEL's strategic and operational plans, contain forward-looking statements. XSEL may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about XSEL's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our growth strategies; our future business development, results of operations and financial condition; our ability to attract and retain customers; competition in the Chinese advertising and media markets; changes in our revenues and certain cost or expense items as a percentage of our revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; the expected growth of the Chinese advertising and media market and Chinese governmental policies relating to advertising and media. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. XSEL does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
Non-GAAP Financial Measures
To supplement XSEL's consolidated financial results under U.S. GAAP, XSEL also provides the following non-GAAP financial measures: "adjusted gross profit" defined as gross profit excluding amortization of intangible assets from acquisitions; "adjusted EBITDA" defined as net income (loss) attributable to XSEL before one time items, other income (expense), taxes, depreciation, amortization of intangible assets from acquisitions, net income (loss) attributable to non-controlling interests and share-based compensation expenses; and "adjusted net income" defined as net income (loss) attributable to XSEL before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest. XSEL believes that these non-GAAP financial measures provide investors with another method for assessing XSEL's underlying operational and financial performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial results under U.S. GAAP. For more information on these non-GAAP financial measures, please refer to Chart 8 (Reconciliation of non-GAAP financial results) of this release.
XSEL believes these non-GAAP financial measures are useful to management and investors in assessing the performance of the Company and assist management in its financial and operational decision making. A limitation of using non-GAAP measures which exclude share-based compensation expenses is that share-based compensation expenses have been and will continue to be a significant recurring expense in our business. A limitation of using non-GAAP adjusted gross profit, adjusted EBITDA and adjusted net income is that they do not include all items that impact our net income for the period. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables provide additional details on the reconciliation between GAAP financial measures that are most directly comparable to non-GAAP financial measures.
The following is a reconciliation of our non-GAAP financial results:
Chart 8: Reconciliation of non-GAAP financial results
3 months 3 months 3 months
ended ended ended
Sep 30, Sep 30, Jun 30,
In US millions 2009 2008 2009
Net loss attributable to XSEL (10.6) (15.9) (2.1)
One-time items(1) 1.1 0.6 --
Amortization of intangible assets from
acquisitions 2.2 3.4 2.2
Share-based compensation expenses 0.4 1.3 0.6
Depreciation 0.5 0.8 0.6
Other expenses 11.3 18.6 4.0
Provision for income taxes 0.1 0.5 0.3
Net (loss) income attributable to
non-controlling interests (0.4) 0.2 0.1
Adjusted EBITDA 4.6 9.5 5.7
Net loss attributable to XSEL (10.6) (15.9) (2.1)
One-time items(1) 8.5 17.0 (1.2)
Amortization of intangible assets from
acquisitions 2.2 3.4 2.2
Share-based compensation expenses 0.4 1.3 0.6
Imputed interest(2) 2.9 1.6 3.4
Adjusted net income 3.4 7.4 2.9
(1) One-time items are those that we believe are not indicative of future
performance. The one-time items of $1.1 million added back to adjusted
EBITDA for the third quarter of 2009 mainly represent certain one-time
legal and professional fees. The one-time items of $8.5 million added
back to adjusted net income for the third quarter of 2009 mainly
represent a non-cash fair value charge of $7.6 million on the
conversion feature of the convertible loan (please refer to Note (9)
to financial information for details). Due to the adoption of EITF
07-5 in 2009, we are required to remeasure the fair value of the
conversion feature of the loan every quarter. Given the increase in
share price between the second and third quarters of 2009, the
conversion feature of the loan was remeasured at $3.1 million in the
second quarter of 2009 and $10.7 million in the third quarter of 2009.
As a result, we recorded a non-cash fair value charge of $7.6 million
in the third quarter of 2009. The fair value of the conversion feature
may have a recurring impact in subsequent periods.
(2) Imputed interest for the third quarter of 2009 is related to
intangible assets from long-term contracts and the convertible loan.
Net income (loss) and adjusted net income per ADS are shown in Chart 9:
Chart 9: Net income (loss) and adjusted net income per ADS(1)
3 months 3 months 3 months
ended ended ended
Sep 30, Sep 30, Jun 30,
In US dollars 2009 2008 2009
Net income (loss) per ADS - basic from
continuing operations $(0.14) $(0.24) $(0.04)
Net income (loss) per ADS - basic from
discontinued operations $0.00 $0.00 $0.00
Net income (loss) per ADS - basic $(0.14) $(0.24) $(0.04)
Net income (loss) per ADS - diluted from
continuing operations $(0.14) $(0.24) $(0.04)
Net income (loss) per ADS - diluted from
discontinued operations $0.00 $0.00 $0.00
Net income (loss) per ADS - diluted $(0.14) $(0.24) $(0.04)
77.6 68.2 76.0
Weighted average number of ADS - basic million million million
77.6 68.2 76.0
Weighted average number of ADS - diluted million million million
Adjusted net income per ADS - basic from
continuing operations $0.04 $0.10 $0.03
Adjusted net income per ADS - basic from
discontinued operations $0.00 $0.00 $0.00
Adjusted net income per ADS - basic $0.04 $0.10 $0.03
Adjusted net income per ADS - diluted from
continuing operations $0.04 $0.10 $0.03
Adjusted net income per ADS - diluted from
discontinued operations $0.00 $0.00 $0.00
Adjusted net income per ADS - diluted $0.04 $0.10 $0.03
77.6 68.2 76.0
Weighted average number of ADS - basic million million million
77.8 71.8 76.0
Weighted average number of ADS - diluted million million million
(1) For computation of the net income (loss) per ADS and adjusted net
income per ADS, the amount attributable to holders of common shares
should be used. Accordingly, dividends on Series B redeemable
convertible preference shares of $0.6 million were taken into account
for the second and third quarter of 2009, and the third quarter of
2008.
Condensed Consolidated Balance Sheet
(In U.S. dollars) Sep 30, 2009 Dec 31, 2008
Unaudited As adjusted
(Note 1) (Note 1)
Assets
Current assets:
Cash and cash equivalents 14,002,591 54,088,842
Short term deposit -- 2,940,051
Restricted cash (Note 2) 35,680,000 37,510,000
Accounts receivable, net of allowance for
doubtful debts (Note 3) 40,970,893 44,762,902
Prepaid program expenses 3,472,816 2,324,253
Consideration receivable from disposal of
subsidiaries (Note 4) 45,640,000 36,970,590
Other current assets 28,908,548 14,902,170
Assets held for sale (Note 5) 8,191,672 --
Total current assets 176,866,520 193,498,808
Content production cost, net 18,507,436 --
Property and equipment, net 5,765,973 6,590,790
Intangible assets, net (Note 6) 280,091,343 200,528,583
Goodwill 92,142,169 46,992,724
Investment 13,508,239 13,508,239
Deposits for investments (Note 7) 15,161,676 14,174,566
Consideration receivable from disposal of
subsidiaries (Note 4) 26,756,293 28,285,035
Other long-term assets 8,912,919 4,671,591
Total assets 637,712,568 508,250,336
Liabilities, mezzanine equity and total equity
Current liabilities:
Bank borrowings (Note 8) 40,884,849 36,374,198
Other current liabilities 100,982,675 69,900,342
Liabilities held for sale (Note 5) 1,246,447 --
Total current liabilities 143,113,971 106,274,540
Deferred tax liabilities 35,380,746 31,679,491
Convertible loan (Note 9) 64,971,085 33,200,000
Long-term liabilities, non-current portion 127,211,464 68,305,496
Total liabilities 370,677,266 239,459,527
Mezzanine equity:
Series B redeemable convertible preferred
shares 32,485,591 30,605,591
XSEL shareholders' equity:
Class A common shares 122,024 104,302
Additional paid-in capital 495,857,809 481,318,345
Accumulated deficits (270,753,657) (252,968,439)
Accumulated other comprehensive income 6,428,006 7,165,833
Total 231,654,182 235,620,041
Non-controlling interests 2,895,529 2,565,177
Total equity 234,549,711 238,185,218
Total liabilities, mezzanine equity and total
equity 637,712,568 508,250,336
Condensed Consolidated Statement of Operations
3 months 3 months 3 months 9 months
ended ended ended ended
(In U.S. Dollars) Sep 30, 2009 Sep 30, 2008 Jun 30, 2009 Sep 30, 2009
Unaudited Unaudited Unaudited Unaudited
As adjusted
(Note 1) (Note 1) (Note 1) (Note 1)
Net revenues:
Advertising
services 22,328,133 25,996,728 21,166,243 57,737,317
Content
production 117,123 7,807,840 207,980 1,203,316
Advertising
sales 16,989,967 15,696,762 17,300,285 43,545,017
Publishing
services 115,137 61,757 133,522 347,771
Total net
revenues 39,550,360 49,563,087 38,808,030 102,833,421
Cost of revenues:
Advertising
services 16,915,624 18,698,951 15,261,154 42,202,851
Content
production 174,292 4,192,846 249,872 756,337
Advertising
sales 13,184,356 8,457,096 13,204,429 31,902,114
Publishing
services 82,740 334,708 221,450 506,785
Total cost of
revenues 30,357,012 31,683,601 28,936,905 75,368,087
Operating expenses:
Selling and
distribution 3,908,095 3,533,088 3,538,980 10,719,637
General and
administrative
(Note 3) 6,459,019 11,575,614 5,609,771 19,482,856
Total operating
expenses 10,367,114 15,108,702 9,148,751 30,202,493
Other operating
income 1,436,564 520,057 1,515,604 3,364,316
Operating income
from continuing
operations 262,798 3,290,841 2,237,978 627,157
Other expenses
(Note 10) 11,342,931 18,571,876 3,984,469 16,516,181
Loss from
continuing
operations before
provision for
income taxes (11,080,133) (15,281,035) (1,746,491) (15,889,024)
Provision for
income taxes 147,956 518,027 298,022 829,639
Net loss from
continuing
operations (11,228,089) (15,799,062) (2,044,513) (16,718,663)
Discontinued
operations
(Note 5):
Income from
discontinued
operations 285,994 195,906 58,566 376,287
Provision for
income taxes 57,236 53,797 28,961 108,421
Discontinued
operations, net
of taxes 228,758 142,109 29,605 267,866
Net loss (10,999,331) (15,656,953) (2,014,908) (16,450,797)
Net (loss) income
attributable to
non-controlling
interests (418,687) 217,192 135,029 (585,579)
Net loss
attributable to
XSEL (10,580,644) (15,874,145) (2,149,937) (15,865,218)
Dividend declared
on Series B
redeemable
convertible
preferred shares 640,000 600,000 640,000 1,920,000
Net loss
attributable to
holders of common
shares (11,220,644) (16,474,145) (2,789,937) (17,785,218)
Net income (loss)
per share:
Basic and diluted
from continuing
operations -
Common shares (0.07) (0.12) (0.02) (0.12)
Basic and diluted
from discontinued
operations -
Common shares 0.00 0.00 0.00 0.00
Basic and diluted
- Common shares (0.07) (0.12) (0.02) (0.12)
Basic and diluted
from continuing
operations -
American
Depositary Shares (0.14) (0.24) (0.04) (0.23)
Basic and diluted
from discontinued
operations -
American
Depositary Shares 0.00 0.00 0.00 0.00
Basic and diluted
- American
Depositary Shares (0.14) (0.24) (0.04) (0.23)
Condensed Consolidated Statement of Cash Flow
3 months 3 months 3 months 9 months
ended ended ended ended
(In U.S. Dollars) Sep 30, 2009 Sep 30, 2008 Jun 30, 2009 Sep 30, 2009
Unaudited Unaudited Unaudited Unaudited
Net cash (used in)
provided by
operating
activities (450,019) 3,196,632 625,814 2,275,276
Net cash (used in)
provided by
investing
activities (5,515,755) 4,983,018 (8,431,705) (28,025,014)
Net cash used in
financing
activities (12,339,519) (20,074,854)(20,089,469) (12,412,944)
Effect of exchange
rate changes (3,529) 156,411 42,705 (24,925)
Net decrease in
cash and cash
equivalents (18,308,822) (11,738,793)(27,852,655) (38,187,607)
Cash and cash
equivalents, as
at beginning of
the period 32,329,314 57,073,797 59,274,949 54,088,842
Less: Cash and
cash equivalents
at end of period
from discontinued
operations (17,901) -- 907,020 (1,898,644)
Cash and cash
equivalents, as
at end of the
period 14,002,591 45,335,004 32,329,314 14,002,591
Notes to Financial Information
1) Condensed consolidated financial information
Effective from January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 160, "Non-controlling Interest in Consolidated Financial Statements - An amendment of Accounting Research Bulletin No. 51" ("SFAS No. 160"), which changed the accounting for and the reporting of minority interest, now referred to as non-controlling interests, in our condensed consolidated financial information. The adoption of SFAS No. 160 resulted in the reclassification of amounts previously attributable to minority interest to a separate component of shareholders' equity titled "Non-controlling Interests" in the accompanying condensed consolidated balance sheet. Additionally, net loss attributable to non-controlling interests was shown separately from net loss in the accompanying condensed consolidated statement of operations. Prior period financial information has been reclassified to conform to the current period presentation as required by SFAS No. 160. In addition, due to the sale of Hyperlink, the Company's research services business, in October 2009, the historical operating results were reported as "discontinued operations" for all periods presented in the accompanying condensed consolidated statement of operations.
2) Restricted cash
Restricted cash was US dollar cash deposits pledged for the RMB loan facilities granted by banks for RMB working capital purposes.
3) Accounts receivable, net of allowance for doubtful debts and debtors turnover
Debtors turnover for the second quarter and third quarter of 2009 were 81 days and 89 days respectively. Our business groups generally grant 90 days to 180 days as the average credit period to major customers, which is in line with the industry practices in the PRC. The Company recorded a recovery of doubtful debts of $3.0 million in general and administrative expenses in 2009 and accordingly wrote back the allowance for doubtful debts previously provided in prior periods.
4) Consideration receivable from disposal of subsidiaries
On September 30, 2009, the Company recorded current and non-current consideration receivable from disposal of subsidiaries of $45.6 million and $26.8 million respectively. This represented the consideration receivable for the disposal of our 85% shareholding of Convey in December 2008.
5) Assets and liabilities held for sale and discontinued operations
On September 30, 2009, the Company recorded assets and liabilities held for sale of $8.2 million and $1.2 million respectively. Due to the sale of Hyperlink, the Company's research services business, in October 2009, the results of operations were separately reported as "discontinued operations" and its assets and liabilities have been reclassified as "assets and liabilities held for sale". Such sale was completed on October 20, 2009.
6) Intangible assets
The carrying value of intangible assets on September 30, 2009 was $280.1 million. This mainly represented the carrying value of the long-term advertising agreements for the Broadcast and Print groups. The carrying value of the intangible assets were composed of a $183.2 million advertising license agreement for our TV business, a $73.2 million exclusive advertising agreement for our newspaper business and $23.7 million of other intangible assets.
7) Deposits for investments
The Company has paid a deposit of $10 million and an advance of $5.2 million to provide advertising services to the pay channels in the PRC. These amounts are refundable unless certain closing conditions are met. On September 30, 2009, there were uncertainties as to whether these closing conditions can be met.
8) Bank borrowings
In October 2007, the Company purchased from UBS Financial Services, Inc. a $25.0 million principal protected note issued by Lehman Brothers Holdings Inc., which matured in January 2009. In August 2008, the Company borrowed $14.0 million from UBS AG using the Principal Protected Note as collateral. On September 15, 2008, Lehman Brothers filed for bankruptcy, and, after the Company refused to post additional collateral for the loan, on September 25, 2008, UBS AG filed a demand for arbitration with the American Arbitration Association against the Company seeking repayment of the bank borrowings. On October 28, 2008, the Company filed its defense to the demand as well as a cross claim against UBS Financial Services, Inc. for an amount in excess of $25.0 million. On October 1, 2009, the Company settled this dispute with UBS Financial Services and UBS AG without further financial impact.
9) Convertible loan
The Company entered into a secured convertible loan facility for up to $80.0 million from Patriarch Partners LLC, a global investment firm based in New York and currently one of our major shareholders. As of September 30, 2009, the Company had drawn $57.8 million through this loan facility (the "convertible loan"). In 2009, the Company was required to adopt EITF Issue 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock" ("EITF 07-5") which applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative for purposes of determining whether that instrument or embedded feature is indexed to an entity's own stock. EITF 07-5 states that an entity shall evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock using the two-step approach of 1) Evaluating the instrument's contingent exercise provisions, if any; and 2) Evaluating the instrument's settlement provisions. After the adoption of EITF 07-5, the conversion feature of the convertible loan was measured at fair value. The change in fair value was recorded in the other income (expenses) in the consolidated statements of operations. The Company recorded convertible loan of $65.0 million on September 30, 3009 and a non-cash fair value charge on convertible loan of $7.6 million for the third quarter of 2009.
10) Other expenses
Other income (expense) includes net interest income (expense) and net other income (expense). The Company recorded a non-cash fair value charge on convertible loan of $7.6 million in other expenses, in accordance with EITF 07-5, for the third quarter of 2009.
SOURCE Xinhua Sports & Entertainment Limited
CALGARY, ALBERTA--(Marketwire - Nov. 11, 2009) - Paramount Resources Ltd. (TSX: POU) ("Paramount" or the "Company") announces its financial and operating results for the three and nine months ended September 30, 2009.
FINANCIAL AND OPERATING
HIGHLIGHTS (1)
($ millions, except as noted)
Three Months Ended Nine Months Ended
Change Change
September 30 2009 2008 % 2009 2008 %
----------------------------------------------------------------------------
Financial
Petroleum and natural gas
sales 36.3 83.5 (57) 116.7 263.4 (56)
Funds flow from
operations 10.2 40.9 (75) 41.5 111.4 (63)
Per share - diluted
($/share) 0.15 0.60 (75) 0.63 1.64 (62)
Net earnings (loss) (25.2) 103.9 (124) (51.4) 33.9 (252)
Per share - diluted
($/share) (0.38) 1.53 (125) (0.78) 0.50 (256)
Exploration and
development expenditures 11.0 33.1 (67) 71.9 107.7 (33)
Investments(2) 303.2 354.8 (15)
Total assets 1,047.7 1,268.3 (17)
Net debt (3) 133.0 61.0 118
Common shares outstanding
(thousands) 65,959 67,749 (3)
Operating
Sales volumes:
Natural gas (MMcf/d) 49.9 57.3 (13) 53.4 63.6 (16)
Oil and NGLs (Bbl/d) 3,733 3,657 2 3,549 3,693 (4)
Total (Boe/d) 12,046 13,206 (9) 12,440 14,288 (13)
Gas weighting 69% 72% (3) 71% 74% (3)
Average realized price:
Natural gas ($/Mcf) 3.24 8.65 (63) 4.32 8.98 (52)
Oil and NGLs ($/Bbl) 62.33 112.64 (45) 55.49 105.63 (47)
Total wells drilled (net) 2 7 (71) 18 27 (33)
----------------------------------------------------------------------------
(1) Readers are referred to the advisories concerning non-GAAP measures and
oil and gas definitions in the "Advisories" section of this document.
(2) Based on the period-end closing prices of publicly traded enterprises
and the book value of the remaining investments.
(3) Net debt is a non-GAAP measure, it is calculated and defined in the
Liquidity and Capital Resources section of Management's Discussion and
Analysis.
Third Quarter Overview
- Third quarter funds flow from operations decreased by $30.7 million from the prior year to $10.2 million due primarily to a $37.4 million decrease in netback, partially offset by $9.9 million of financial commodity payments in the prior year.
- Third quarter net loss was $25.2 million compared to earnings of $103.9 million in 2008. The current quarter loss included the impacts of the lower netback, lower investment earnings, and increased corporate costs related primarily to stock based compensation. The prior year included $79.6 million of financial commodity contract gains.
Principal Properties
- Realized prices declined by 63 percent for natural gas and 45 percent for crude oil and NGLs from the third quarter of 2008.
- Netback decreased to $17.4 million in the third quarter of 2009 from $54.8 million in 2008 due to lower revenues, partially offset by lower royalties.
- Exploration and development capital spending decreased to $11.0 million from $33.1 million in the third quarter of 2008.
- Grande Prairie drilled three (2.1 net) wells targeting the Montney formation in the quarter. One (0.5 net) well was tied in and brought on production in the quarter, one (1.0 net) well is expected to be on production in the fourth quarter, and the final well is expected to be on production in 2010.
- An additional 100 Boe/d of production at Haro in Northern was shut-in due to a third party pipeline failure. As a result, production of approximately 500 Boe/d was shut-in at the end of the quarter in Northern.
- In November, two (2.0 net) wells in Kaybob and one (1.0 net) well in Northern drilled in the first quarter were brought on production. Northern also brought shut-in wells in East Negus back on production.
Strategic Investments
- Completed $30.4 million rig financing with the proceeds used to reduce the credit facility balance.
- Paramount moved a second rig to Alberta from North Dakota. The two rigs are currently being used for the Company's Grande Prairie and Kaybob drilling programs.
- Invested an additional $3.4 million in Redcliffe Exploration Inc., a publicly traded oil and gas company.
Corporate
- Corporate general and administrative costs decreased to $3.6 million from $5.2 million in the third quarter of 2008.
- Subsequent to September 30, 2009 Paramount closed a public offering and private placements of an aggregate of 6,000,000 common shares for gross proceeds of $93.8 million.
OUTLOOK
The 2009 exploration and development budget of $90.0 million excluding land purchases remains unchanged. Year-to-date average production of 12,440 Boe/d is consistent with expectations and the average production forecast of 12,500 Boe/d also remains unchanged.
ADDITIONAL INFORMATION
A copy of Paramount's complete results for the three and nine months ended September 30, 2009 including Management's Discussion and Analysis and Unaudited Interim Consolidated Financial Statements can be obtained at http://media3.marketwire.com/docs/1111pou_ern.pdf. This report will also be made available through Paramount's website at www.paramountres.com and SEDAR at www.sedar.com.
ABOUT PARAMOUNT
Paramount is a Canadian oil and natural gas exploration, development and production company with operations focused in Western Canada. Paramount's common shares are listed on the Toronto Stock Exchange under the symbol "POU".
ADVISORIES Forward-looking Information
Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information in this document includes, but is not limited to: business strategies and objectives, financing plans, use of proceeds from the Company's equity offerings, planned capital expenditures, future production levels, product pricing, exploration and development plans and the timing thereof, drilling results, operating and other costs, royalty rates and general economic conditions, as they relate to Paramount.
Such forward-looking information is based on a number of assumptions which may prove to be incorrect. The following assumptions have been made, in addition to any other assumptions identified in this document:
- future oil and gas prices and general economic and business conditions;
- the ability of Paramount to obtain required capital to finance its exploration, development and operations;
- the ability of Paramount to obtain equipment, services, supplies and personnel in a timely manner to carry out its activities;
- the ability of Paramount to market its oil and natural gas successfully to current and new customers;
- the ability of Paramount to secure adequate product transportation and storage;
- the ability of Paramount and its industry partners to obtain drilling success consistent with expectations;
- the timely receipt of required regulatory approvals; and
- currency, exchange and interest rates.
Although Paramount believes that the expectations reflected in such forward-looking information is reasonable, undue reliance should not be placed on such forward-looking information as Paramount can give no assurance that such expectations will prove to be correct. Forward-looking information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Paramount and described in the forward-looking information. These risks and uncertainties include, but are not limited to:
- fluctuations in oil and gas prices, foreign currency exchange rates and interest rates;
- general economic and business conditions;
- the ability of Paramount's management to execute its business plan;
- the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas and market demand for oil and gas;
- the ability of Paramount to obtain required capital to finance its exploration, development and operations and the adequacy and costs of such capital;
- risks and uncertainties involving the geology of oil and gas deposits;
- the uncertainty of reserves and resource estimates and reserves life;
- the ability of Paramount to add production and reserves through development and exploration activities;
- the uncertainty of estimates and projections relating to exploration and development costs and expenses, future production and the results of exploration, development and drilling;
- potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
- the availability of future growth prospects and Paramount's expected financial requirements;
- risks inherent in Paramount's marketing operations, including counterparty credit risk;
- Paramount's ability to obtain equipment, services, supplies and personnel in a timely manner to carry out its activities;
- Paramount's ability to secure adequate product transportation and storage;
- imprecision in estimates of product sales and the anticipated revenues from such sales;
- weather conditions;
- the possibility that government laws, regulations or policies, including taxation laws, environmental laws and regulatory programs and royalty programs may change or governmental or regulatory approvals may be delayed or withheld;
- the value and liquidity of Paramount's investments in other entities and the returns on such investments;
- uncertainty regarding aboriginal land claims and co-existing with local populations; and
- other risks and uncertainties described elsewhere in this document or in Paramount's other filings with Canadian securities authorities and the United States Securities and Exchange Commission.
The forward-looking information contained in this document is made as of the date hereof and, except as required by law, Paramount undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.
Non-GAAP Measures
"Funds flow from operations", "Funds flow from operations, per Boe", "Netback", and "Net Debt" are used to assist management in measuring the Company's ability to finance capital programs and meet financial obligations. Funds flow from operations refers to cash flows from operating activities before net changes in operating working capital. Netback equals petroleum and natural gas sales less royalties, operating costs, production taxes and transportation costs. Refer to the calculation of Net Debt in the liquidity and capital resources section of Management's Discussion and Analysis. Non-GAAP measures should not be considered in isolation or construed as alternatives to their most directly comparable measure calculated in accordance with GAAP, or other measures of financial performance calculated in accordance with GAAP.
Oil and Gas Measures and Definitions
This document contains disclosure expressed as "Boe" and "Boe/d". All oil and natural gas equivalency volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil. Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
FOR FURTHER INFORMATION PLEASE CONTACT:
Paramount Resources Ltd.
J.H.T. (Jim) Riddell
President and Chief Operating Officer
(403) 290-3600
Fax: (403) 262-7994 (FAX)
Paramount Resources Ltd.
B.K. (Bernie) Lee
Chief Financial Officer
(403) 290-3600
Fax: (403) 262-7994 (FAX)
www.paramountres.com
Source: Paramount Resources Ltd.
SHANGHAI, Nov. 11 /PRNewswire-Asia/ -- Ctrip.com International, Ltd. (Nasdaq: CTRP), a leading travel service provider for hotel accommodations, airline tickets and packaged tours in China, today announced its unaudited financial results for the quarter ended September 30, 2009.
Highlights for the Third Quarter of 2009
-- Net revenues were RMB545 million (US$80 million) for the third quarter
of 2009, up 47% year-on-year. Excluding net revenues attributable to
ezTravel, Ctrip's net revenues were RMB518 million (US$76 million) for
the third quarter of 2009, up 40% year-on-year.
-- Gross margin was 77% for the third quarter of 2009, remaining
consistent with that in the same period in 2008.
-- Income from operations was RMB199 million (US$29 million) for the third
quarter of 2009, up 87% year-on-year. Excluding share-based
compensation charges (non-GAAP), income from operations was RMB226
million (US$33 million), up 64% year-on-year.
-- Operating margin was 37% in the third quarter of 2009, compared to 29%
in the third quarter of 2008. Excluding share-based compensation
charges (non-GAAP), operating margin was 41%, compared to 37% with the
same period in 2008.
-- Net income attributable to Ctrip's shareholders was RMB189 million
(US$28 million) in the third quarter of 2009, up 80% year-on-year.
Excluding share-based compensation charges (non-GAAP), net income
attributable to Ctrip's shareholders was RMB215 million (US$32 million),
up 59% year-on-year.
-- Diluted earnings per ADS were RMB2.65 (US$0.39). Excluding share-based
compensation charges (non-GAAP), diluted earnings per ADS were RMB3.03
(US$0.44).
-- Share-based compensation charges were RMB27 million (US$4 million),
accounting for 5% of the net revenues, or RMB0.38 (US$0.06) per ADS,
for the third quarter of 2009.
"We are pleased that our team delivered solid results in the third quarter of 2009," said Min Fan, Chief Executive Officer of Ctrip, "As we celebrate Ctrip's 10th anniversary of establishment, we want to take this opportunity to thank our customers, our partners and our employees for their supports through the years. In order to extend our leadership in the future, we will continuously focus on strengthening our core competitiveness in customer service, technology innovation, and sales and marketing. We believe we are well prepared for the new era to come."
Third Quarter 2009 Financial Results
For the third quarter of 2009, Ctrip reported total revenues of RMB583 million (US$85 million), representing a 47% increase from the same period in 2008 and a 15% increase from the previous quarter.
Hotel reservation revenues amounted to RMB262 million (US$38 million) for the third quarter of 2009, representing a 41% increase year-on-year, and a 16% increase quarter-on-quarter. Excluding revenues attributable to ezTravel, Ctrip's hotel reservation revenues were RMB257 million (US$38 million), representing a 38% increase year-on-year, primarily driven by a 47% increase in hotel reservation volume, which was partially offset by a decrease in commission per room. Excluding revenues attributable to ezTravel, Ctrip's hotel reservation revenues increased by 15% quarter-on-quarter, primarily driven by an increase in hotel room reservation volume.
Air-ticketing revenues for the third quarter of 2009 were RMB241 million (US$35 million), representing a 45% increase year-on-year, and an 8% increase quarter-on-quarter. Excluding revenues attributable to ezTravel, Ctrip's air-ticketing revenues were RMB234 million (US$34 million) for the third quarter of 2009, representing a 40% increase year-on-year, and 9% quarter-on-quarter, primarily driven by an increase in air-ticketing sales volume.
Packaged-tour revenues for the third quarter of 2009 were RMB55 million (US$8 million), representing a 93% increase year-on-year, and a 53% increase quarter-on-quarter. Excluding revenues attributable to ezTravel, Ctrip's packaged-tour revenues for the third quarter of 2009 increased by 53% year-on-year, and 61% quarter-on-quarter, due to the increase in the leisure travel volume.
For the third quarter of 2009, net revenues were RMB545 million (US$80 million), a 47% increase from the same period in 2008 and a 15% increase from the previous quarter. Excluding net revenues attributable to ezTravel, net revenues were RMB518 million (US$76 million), a 40% increase from the same period in 2008 and a 14% increase from the previous quarter.
Gross margin was 77% in the third quarter of 2009, remaining consistent with that in the same period in 2008 and in the previous quarter.
Product development expenses for the third quarter of 2009 increased by 32% to RMB81 million (US$12 million) from the same period in 2008, and by 6% from the previous quarter, primarily due to the increase in the number of product development personnel. Excluding share-based compensation charges (non-GAAP), product development expenses accounted for 14% of the net revenues, remaining consistent with that in the same period of last year and in the previous quarter.
Sales and marketing expenses for the third quarter of 2009 increased by 32% to RMB94 million (US$14 million) from the same period in 2008 and by 13% from the previous quarter primarily due to the increase in sales and marketing activities and the number of personnel. Excluding share-based compensation charges (non-GAAP), sales and marketing expenses accounted for 17% of the net revenues, compared to 18% in the same period last year and remained consistent with that in the previous quarter.
General and administrative expenses for the third quarter of 2009 increased by 5% to RMB47 million (US$7 million) from the same period in 2008 and 4% from the previous quarter primarily due to the increase in the number of personnel. Excluding share-based compensation charges (non-GAAP), general and administrative expenses accounted for 6% of the net revenues, compared to 7% in the same period last year and remained consistent with that in the previous quarter.
Income from operations for the third quarter of 2009 was RMB199 million (US$29 million), representing an 87% increase from the same period in 2008 and a 22% increase from the previous quarter. Excluding share-based compensation charges (non-GAAP), income from operations was RMB226 million (US$33 million), representing a 64% increase from the third quarter in 2008 and a 19% increase from the previous quarter.
Operating margin was 37% in the third quarter of 2009, compared to 29% in the third quarter of 2008 and 34% in the previous quarter. Excluding share-based compensation charges (non-GAAP), operating margin was 41% in the third quarter of 2009, compared to 37% in the third quarter of 2008, and 40% in the previous quarter.
Net income attributable to Ctrip's shareholders for the third quarter of 2009 was RMB189 million (US$28 million), representing an 80% increase from the same period in 2008, and a 19% increase from the previous quarter. Net income attributable to Ctrip's shareholders for the current quarter includes equity income of RMB12 million (US$2 million) from our investment in Home Inns. Excluding share-based compensation charges (non-GAAP), net income attributable to Ctrip's shareholders was RMB215 million (US$32 million), representing a 59% increase from the same period in 2008, and a 16% increase from the previous quarter.
The effective tax rate for the third quarter of 2009 decreased to 13% from the same period of 2008 and the previous quarter primarily due to the preferential tax treatment to certain of Ctrip's PRC subsidiaries.
Diluted earnings per ADS were RMB2.65 (US$0.39) for the third quarter of 2009. Excluding share-based compensation charges (non-GAAP), diluted earnings per ADS were RMB3.03 (US$0.44).
As of September 30, 2009, the balance of cash and short-term investment was RMB1.4 billion (US$207 million).
Business Outlook
For the fourth quarter of 2009, Ctrip expects a year-on-year net revenue growth rate of approximately 25-30%. This forecast reflects Ctrip's current and preliminary view, which is subject to change.
Conference Call
Ctrip's management team will host a conference call at 8:00PM US Eastern Time on November 11, 2009 (or 9:00AM on November 12, 2009 in the Shanghai/HK time zone) following the announcement.
The conference call will be available on Webcast live and replay at: http://ir.ctrip.com . The call will be archived for one month at this website.
The dial-in details for the live conference call: U.S. Toll Free Number +1.888.679.8034, International dial-in number +1.617.213.4847, Passcode 99296235. For pre-registration, please click https://www.theconferencingservice.com/prereg/key.process?key=PNYGYFRGX .
A telephone replay of the call will be available after the conclusion of the conference call through November 19, 2009. The dial-in details for the replay: U.S. Toll Free Number +1.888.286.8010, International dial-in number +1.617.801.6888, Passcode 41222577.
Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expect," "anticipate," "future," "intend," "plan," "believe," "estimate," and "confident" and similar statements. Among other things, quotations from management and the Business Outlook section in this press release, as well as Ctrip's strategic and operational plans, contain forward-looking statements. Ctrip may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on Forms 20-F and 6-K, etc., in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Ctrip's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, a reoccurrence of slow-down of economic growth in China and the worldwide recession, declines or disruptions in the travel industry, volatility in the trading price of Ctrip's ADSs, Ctrip's reliance on the relationships with travel suppliers and strategic alliances, failure to further increase Ctrip's brand recognition to obtain new business partners and consumers, failure to compete against new and existing competitors, damage to or failure of Ctrip's infrastructure and technology, loss of services of Ctrip's key executives, risks associated with any strategic investments or acquisitions, risks related to health epidemics, such as outbreaks of H1N1 flu (swine flu), SARs or avian flu, that may materially disrupt the travel industry, risks and uncertainties associated with PRC laws and regulations governing internet content providers and affecting Ctrip's business in China, Ctrip's failure to prevent others from using its intellectual property, Ctrip's failure to successfully manage current growth and potential future growth, and other risks outlined in Ctrip's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F and other filings. All information provided in this press release and in the attachments is as of November 11, 2009, and Ctrip does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
About Non-GAAP Financial Measures
To supplement Ctrip's unaudited consolidated financial statements presented in accordance with the United States Generally Accepted Accounting Principles ("GAAP"), Ctrip uses non-GAAP financial information related to product development expenses, sales and marketing expenses, general and administrative expenses, income from operations, operating margin, net income, and diluted earnings per ordinary share and per ADS, each of which is adjusted from the most comparable GAAP result to exclude the share-based compensation charges recorded under Statement of Financial Accounting Standard 123R, "Share-Based Payment" for 2009 and 2008. Ctrip's management believes the non-GAAP financial measures facilitate better understanding of operating results from quarter to quarter and provides the management better capability to plan and forecast future periods.
The non-GAAP information is not prepared in accordance with GAAP and may be different from non-GAAP methods of accounting and reporting used by other companies. The presentation of this additional information should not be considered a substitute for the GAAP results. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude share-based compensation charges that have been and will continue to be significant recurring expenses in our business for the foreseeable future.
Reconciliations of Ctrip's non-GAAP financial data to the most comparable GAAP data included in the consolidated statement of operations are included at the end of this press release.
About Ctrip.com International, Ltd.
Ctrip.com International, Ltd. is a leading travel service provider of hotel accommodations, airline tickets and packaged-tours in China. Ctrip aggregates information on hotels and flights and enables customers to make informed and cost-effective hotel and flight bookings. Ctrip targets primarily business and leisure travelers in China. Since its inception in 1999, Ctrip has experienced substantial growth and become one of the best-known travel brands in China.
For further information, please contact:
Lin Zhang
Ctrip.com International, Ltd.
Tel: +86-21-3406-4880 x12920
Email: z_lin@ctrip.com
June Zhu
Ctrip.com International, Ltd.
Tel: +86-21-3406-4880 x12258
Email: jun_zhu@ctrip.com
Ctrip.com International, Ltd.
Consolidated Balance Sheet Information
December September September
31, 2008 30, 2009 30, 2009
RMB RMB USD
(unaudited) (unaudited) (unaudited)
ASSETS
Current assets:
Cash 1,069,827,364 1,191,983,450 174,618,888
Restricted cash 6,600,000 51,638,252 7,564,714
Short-term investment 176,585,908 167,123,775 24,482,695
Accounts receivable, net 274,302,454 419,659,326 61,477,737
Prepayments and other current
assets 95,150,506 169,721,056 24,863,182
Deferred tax assets 8,840,772 12,313,554 1,803,867
Total current assets 1,631,307,004 2,012,439,413 294,811,083
Long-term deposits 145,500,002 142,600,299 20,890,143
Land use rights 111,510,231 109,569,071 16,051,254
Property, equipment and
software 346,117,083 473,135,623 69,311,714
Investment 237,943,497 643,505,531 94,269,950
Goodwill 63,689,736 322,936,838 47,308,435
Other long-term assets 24,498,763 68,481,339 10,032,132
Total assets 2,560,566,316 3,772,668,114 552,674,711
LIABILITIES
Current liabilities:
Accounts payable 138,657,593 198,784,840 29,120,864
Salary and welfare payable 65,590,151 115,923,855 16,982,194
Taxes payable 54,745,686 86,672,317 12,697,008
Advances from customers 187,576,416 261,977,257 38,378,198
Accrued liability for
customer reward program 58,046,062 81,804,478 11,983,897
Deferred tax liabilities -- 17,299,500 2,534,280
Other payables and accruals 121,421,617 188,353,794 27,592,774
Total current liabilities 626,037,525 950,816,041 139,289,215
Other long-term payables 812,500 -- --
Total liabilities 626,850,025 950,816,041 139,289,215
SHAREHOLDERS' EQUITY
Share capital 2,761,259 2,791,606 408,955
Additional paid-in capital 967,687,772 1,140,878,292 167,132,268
Statutory reserves 75,948,298 60,579,898 8,874,615
Accumulated other
comprehensive loss (175,929,389) (77,755,001) (11,390,671)
Retained Earnings 1,060,620,258 1,529,388,067 224,046,771
Total Ctrip's shareholders'
equity 1,931,088,198 2,655,882,862 389,071,938
Noncontrolling interests * 2,628,093 165,969,211 24,313,558
Total shareholders' equity 1,933,716,291 2,821,852,073 413,385,496
Total liabilities and
shareholders' equity 2,560,566,316 3,772,668,114 552,674,711
* It reflects implementation of SFAS No.160, "Noncontrolling Interests
in Consolidated Financial Statements-an amendment of ARB No.51."
Ctrip.com International, Ltd.
Consolidated Statement of Operations Information
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
September 30, June 30, September 30, September 30,
2008 2009 2009 2009
RMB RMB RMB USD
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Hotel reservation 186,005,621 226,835,080 262,280,259 38,422,586
Air-ticketing 166,420,800 222,283,380 241,144,278 35,326,284
Packaged tour 28,371,045 35,874,457 54,733,097 8,018,092
Others 16,248,986 22,665,693 25,242,271 3,697,851
Total revenues 397,046,452 507,658,610 583,399,905 85,464,813
Less: business
tax and related
surcharges (26,909,297) (31,371,685) (37,970,770) (5,562,505)
Net revenues 370,137,155 476,286,925 545,429,135 79,902,308
Cost of revenues (86,404,046) (108,061,461) (124,352,706) (18,216,974)
Gross profit 283,733,109 368,225,464 421,076,429 61,685,334
Operating expenses:
Product
development * (61,254,023) (76,285,782) (80,758,571) (11,830,678)
Sales and
marketing * (71,028,049) (82,817,192) (93,931,484) (13,760,435)
General and
administrative * (44,819,506) (45,444,456) (47,188,825) (6,912,898)
Total operating
expenses (177,101,578) (204,547,430) (221,878,880) (32,504,011)
Income from
operations 106,631,531 163,678,034 199,197,549 29,181,323
Interest income 8,012,955 5,000,977 4,340,502 635,859
Other income 11,442,154 18,276,381 2,625,101 384,563
Income before
income tax
expense and
equity income 126,086,640 186,955,392 206,163,152 30,201,745
Income tax
expense (21,604,489) (33,393,036) (26,809,547) (3,927,448)
Equity income in
affiliates -- 6,581,137 11,573,606 1,695,468
Net income 104,482,151 160,143,493 190,927,211 27,969,765
Less: Net income
attributable to
noncontrolling
interests** 13,291 (1,284,685) (2,410,490) (353,123)
Net income
attributable to
Ctrip's
shareholders 104,495,442 158,858,808 188,516,721 27,616,642
Earnings per
ordinary share
- Basic 3.13 4.73 5.59 0.82
- Diluted 3.03 4.54 5.30 0.78
Earnings per ADS
- Basic 1.56 2.37 2.80 0.41
- Diluted 1.52 2.27 2.65 0.39
Weighted average
ordinary shares
outstanding
- Basic 33,400,258 33,574,513 33,703,516 33,703,516
- Diluted 34,447,448 34,973,103 35,602,373 35,602,373
* Share-based
compensation
charges included
are as follows:
Product
development 8,131,437 7,279,340 7,021,263 1,028,576
Sales and
marketing 4,496,630 4,040,372 3,902,164 571,645
General and
administrative 18,657,104 15,661,986 16,043,286 2,350,251
** It reflects implementation of SFAS No.160, "Noncontrolling Interests
in Consolidated Financial Statements-an amendment of ARB No.51."
Ctrip.com International, Ltd.
Reconciliation of GAAP and Non-GAAP Results
(In RMB, except % and per share information)
Quarter Ended September 30, 2009
GAAP Result % of Share-based % of Non-GAAP % of
Net Compensation Net Result Net
Revenue Revenue Revenue
Product
development (80,758,571) 15% 7,021,263 1% (73,737,308) 14%
Sales and
marketing (93,931,484) 17% 3,902,164 1% (90,029,320) 17%
General and
administrative (47,188,825) 9% 16,043,286 3% (31,145,539) 6%
Total
operating
expenses (221,878,880) 41% 26,966,713 5% (194,912,167) 36%
Income from
operations 199,197,549 37% 26,966,713 5% 226,164,262 41%
Net income
attributable
to Ctrip's
shareholders 188,516,721 35% 26,966,713 5% 215,483,434 40%
Diluted
earnings per
ordinary
share (RMB) 5.30 0.76 6.05
Diluted
earnings per
ADS (RMB) 2.65 0.38 3.03
Diluted
earnings per
ADS (USD) 0.39 0.06 0.44
Quarter Ended June 30, 2009
GAAP Result % of Share-based % of Non-GAAP % of
Net Compensation Net Result Net
Revenue Revenue Revenue
Product
development (76,285,782) 16% 7,279,340 2% (69,006,442) 14%
Sales and
marketing (82,817,192) 17% 4,040,372 1% (78,776,820) 17%
General and
administrative (45,444,456) 10% 15,661,986 3% (29,782,470) 6%
Total
operating
expenses (204,547,430) 43% 26,981,698 6% (177,565,732) 37%
Income from
operations 163,678,034 34% 26,981,698 6% 190,659,732 40%
Net income
attributable
to Ctrip's
shareholders 158,858,808 33% 26,981,698 6% 185,840,506 39%
Diluted
earnings per
ordinary
share (RMB) 4.54 0.77 5.31
Diluted
earnings per
ADS (RMB) 2.27 0.39 2.66
Diluted
earnings per
ADS (USD) 0.33 0.06 0.39
Quarter Ended September 30, 2008
GAAP Result % of Share-based % of Non-GAAP % of
Net Compensation Net Result Net
Revenue Revenue Revenue
Product
development (61,254,023) 17% 8,131,437 2% (53,122,586) 14%
Sales and
marketing (71,028,049) 19% 4,496,630 1% (66,531,419) 18%
General and
administrative (44,819,506) 12% 18,657,104 5% (26,162,402) 7%
Total
operating
expenses (177,101,578) 48% 31,285,171 8% (145,816,407) 39%
Income from
operations 106,631,531 29% 31,285,171 8% 137,916,702 37%
Net income
attributable
to Ctrip's
shareholders 104,495,442 28% 31,285,171 8% 135,780,613 37%
Diluted
earnings per
ordinary
share (RMB) 3.03 0.91 3.94
Diluted
earnings per
ADS (RMB) 1.52 0.45 1.97
Diluted
earnings per
ADS (USD) 0.22 0.07 0.29
Notes for all the financial schedules presented:
Note 1: The conversion of Renminbi (RMB) into U.S. dollars (USD) is
based on the noon buying rate of USD1.00=RMB6.8262 on September
30, 2009 in The City of New York for cable transfers of RMB as
certified for customs purposes by the Federal Reserve Bank of
New York.
SOURCE Ctrip.com International, Ltd.
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