UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. | |
| For the quarterly period ended March 31, 2003 | ||
| or | ||
| o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. | |
| For the transition period from to | ||
| Commission file number 000-30586 |
IVANHOE ENERGY INC.
(Exact name of registrant as specified in its charter)
| Yukon, Canada
(State or other jurisdiction of incorporation or organization) |
98-0372413
(I.R.S. Employer Identification No.) |
Suite 654 – 999 Canada Place
Vancouver, British Columbia, Canada
V6C 3E1
(Address of principal executive office)
(604) 688-8323
(registrant’s telephone number, including area code)
Former Name, Former Address and Former Fiscal Year, if Change Since Last Report:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes þ | No o |
The number of shares of the registrant’s capital stock outstanding as of March 31, 2003 was 144,872,527 Common Shares, no par value.
Page 1 of 19
TABLE OF CONTENTS
| Page | ||||
| PART I | Financial Information | |||
| Item 1. | Financial Statements | |||
| Consolidated Condensed Balance Sheets at March 31, 2003 (unaudited) and December 31, 2002 | 3 | |||
| Unaudited Consolidated Condensed Statements of Loss and Deficit for the Three-Month Periods Ended March 31, 2003 and 2002 | 4 | |||
| Unaudited Consolidated Condensed Statements of Cash Flow for the Three-Month Periods Ended March 31, 2003 and 2002 | 5 | |||
| Notes to the Unaudited Consolidated Condensed Financial Statements | 6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 13 | ||
| Item 4. | Controls and Procedures | 13 | ||
| PART II | Other Information | |||
| Item 1. | Legal Proceedings | 14 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 14 | ||
| Item 3. | Defaults Upon Senior Securities | 14 | ||
| Item 4. | Submission of Matters To a Vote of Securityholders | 14 | ||
| Item 5. | Other Information | 14 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 14 |
Page 2 of 19
Part I – Financial Information
Item 1. Financial Statements
IVANHOE ENERGY INC.
Consolidated Condensed Balance Sheets
(stated in thousands of U.S. Dollars)
| March 31, 2003 | December 31, 2002 | |||||||
| (unaudited) | (audited) | |||||||
Assets |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 2,783 | $ | 3,980 | ||||
Accounts receivable |
2,634 | 2,519 | ||||||
Other |
755 | 691 | ||||||
| 6,172 | 7,190 | |||||||
Long term assets |
484 | 462 | ||||||
Oil and gas properties, equipment and GTL investments, net |
100,572 | 99,436 | ||||||
| $ | 107,228 | $ | 107,088 | |||||
Liabilities and Shareholders’ Equity |
||||||||
Current Liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | 5,116 | $ | 4,797 | ||||
Demand loans payable |
750 | 500 | ||||||
Convertible debenture |
1,000 | 1,000 | ||||||
| 6,866 | 6,297 | |||||||
Asset retirement obligation |
405 | 243 | ||||||
Shareholders’ Equity |
||||||||
Share capital, issued 144,873,000
common shares; December
31, 2002 144,466,000 |
131,519 | 131,112 | ||||||
Deficit |
(31,562 | ) | (30,564 | ) | ||||
| 99,957 | 100,548 | |||||||
| $ | 107,228 | $ | 107,088 | |||||
Page 3 of 19
IVANHOE ENERGY INC.
Unaudited Consolidated Condensed Statements of Loss and Deficit
Three Month Periods Ended March 31
(stated in thousands of U.S. Dollars except share and per share data)
| 2003 | 2002 | |||||||
Revenue |
||||||||
Oil and gas revenue |
$ | 2,531 | $ | 1,663 | ||||
Interest income |
37 | 29 | ||||||
| 2,568 | 1,692 | |||||||
Expenses |
||||||||
Operating costs |
898 | 856 | ||||||
General and administrative |
1,748 | 1,587 | ||||||
Depletion and depreciation |
920 | 770 | ||||||
| 3,566 | 3,213 | |||||||
Net Loss |
998 | 1,521 | ||||||
Deficit, beginning of period |
30,564 | 23,495 | ||||||
Deficit, end of period |
$ | 31,562 | $ | 25,016 | ||||
Net Loss per share |
$ | 0.01 | $ | 0.01 | ||||
Weighted Average Number of Shares (in
thousands) |
144,534 | 139,458 | ||||||
Page 4 of 19
IVANHOE ENERGY INC.
Unaudited Consolidated Condensed Statements of Cash Flow
Three Month Periods Ended March 31
(stated in thousands of U.S. Dollars)
| 2003 | 2002 | |||||||
Operating Activities |
||||||||
Net (loss) |
$ | (998 | ) | $ | (1,521 | ) | ||
Items not requiring use of cash |
||||||||
Depletion and depreciation |
920 | 770 | ||||||
Changes in non-cash working capital items |
547 | (124 | ) | |||||
| 469 | (875 | ) | ||||||
Investing Activities |
||||||||
Capital spending |
(1,916 | ) | (6,688 | ) | ||||
Proceeds from sale of assets |
— | 1,200 | ||||||
| (1,916 | ) | (5,488 | ) | |||||
Financing Activities |
||||||||
Shares issued on exercise of options |
— | 69 | ||||||
Proceeds from demand loan |
250 | — | ||||||
| 250 | 69 | |||||||
Decrease in cash and cash equivalents, for the period |
(1,197 | ) | (6,294 | ) | ||||
Cash and cash equivalents, beginning of period |
3,980 | 9,697 | ||||||
Cash and cash equivalents, end of period |
$ | 2,783 | $ | 3,403 | ||||
Included in the above are the following: |
||||||||
Taxes paid |
$ | 6 | $ | — | ||||
Interest paid |
$ | 19 | $ | 18 | ||||
Decrease (increase) in non-cash working capital items |
||||||||
Accounts receivable |
$ | (115 | ) | $ | 271 | |||
Other current assets |
(64 | ) | 6 | |||||
Accounts payable and accrued liabilities |
726 | (401 | ) | |||||
| $ | 547 | $ | (124 | ) | ||||
Page 5 of 19
Notes to the Consolidated Condensed Financial Statements
March 31, 2003
(all tabular amounts are expressed in thousands of United States dollars except per share data)
(Unaudited)
1. GENERAL
The unaudited consolidated condensed financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the December 31, 2002 consolidated financial statements, except for a change in the policy of accounting for asset retirement obligations, and should be read in conjunction therewith. The December 31, 2002 consolidated balance sheet was derived from the audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in Canada and the U.S. All adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as at March 31, 2003 and December 31, 2002 and the results of operations and cash flows for the three-month periods ended March 31, 2003 and 2002 have been included. The results of operations and cash flows are not necessarily indicative of the results for a full year.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts and other disclosure in these condensed consolidated financial statements. Actual results may differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
Asset Retirement
Prior to January 2003, the Company had estimated its future site restoration and abandonment costs associated with its oil and gas properties and amortized this estimate to operations using the unit-of-production method based upon estimated proved reserves. The provision was included with depletion and depreciation expense.
For fiscal years beginning after January 1, 2004, Canadian GAAP requires that asset retirement costs and liabilities associated with site restoration and abandonment of tangible long-lived assets be initially measured at a fair value which approximates the cost a third party would incur in performing the tasks necessary to retire such assets. The fair value is recognized in the financial statements at the present value of expected future cash flows. Subsequent to the initial measurement, the effect of the passage of time on the liability for the asset retirement obligation (accretion expense) and the amortization of the asset retirement cost are recognized in the results of operations.
The Company has elected early implementation of this accounting policy. Accordingly, effective January 1, 2003, the Company changed its accounting policy to capitalize asset retirement costs as part of the carrying value of its oil and gas properties and adjusted the amount of its site restoration liability to the present value of the liability for the corresponding asset retirement obligation as of this date. The Company has adopted the policy without retroactive adjustment of prior years because implementation of this change had an immaterial effect on the Company’s financial position and results of operations in prior years or in the current period (See notes 3 and 9).
U.S. GAAP for asset retirement obligations conforms in all material respects to Canadian GAAP. Implementation for U.S. GAAP is required for fiscal years beginning after June 2002.
Page 6 of 19
The asset retirement costs are being amortized using the unit of production method based on estimated proved reserves. The amortization expenses and accretion of the liability for the asset retirement obligation are included with depletion and depreciation expense.
3. OIL AND GAS PROPERTIES
Effective January 2003, the Company capitalized $0.3 million as a result of implementation of a new accounting policy on asset retirement obligations. No additional asset retirement costs were incurred for the three-month period ended March 31, 2003.
4. DERIVATIVE ACTIVITIES
The Company’s results of operations are sensitive mainly to fluctuations in oil and natural gas prices. The Company may periodically use different types of derivative instruments to manage its exposure to price volatility, thus mitigating fluctuations in commodity-related cash flows.
In September 2002, the Company entered into a costless collar derivative to hedge the cash flow from the sale of 91,000 barrels of oil production over a six-month period starting October 2002 or approximately 50% of production volumes. The hedge has a ceiling price of $28.95 per barrel and a floor price of $24.00 per barrel using WTI as the index traded on the NYMEX. Gains and losses on derivatives are recognized in earnings as they are realized. For the three-month period ended March 31, 2003, the Company had realized losses of $0.2 million on derivative transactions. The hedge losses are included in oil and gas revenue.
5. SEGMENT INFORMATION
The following tables present the Company’s interim segment information for the three-month periods ended March 31:
| 2003 | 2002 | |||||||||||||||||||||||
| U.S. | China | Total | U.S. | China | Total | |||||||||||||||||||
Oil and gas revenue |
$ | 1,441 | $ | 1,090 | $ | 2,531 | $ | 1,032 | $ | 631 | $ | 1,663 | ||||||||||||
Interest income |
37 | — | 37 | 29 | — | 29 | ||||||||||||||||||
| 1,478 | 1,090 | 2,568 | 1,061 | 631 | 1,692 | |||||||||||||||||||
Operating costs |
503 | 395 | 898 | 530 | 326 | 856 | ||||||||||||||||||
Depletion and depreciation |
565 | 355 | 920 | 458 | 312 | 770 | ||||||||||||||||||
| 1,068 | 750 | 1,818 | 988 | 638 | 1,626 | |||||||||||||||||||
Segment income (loss) before the
following |
$ | 410 | $ | 340 | 750 | $ | 73 | $ | (7 | ) | 66 | |||||||||||||
General and administrative |
1,748 | 1,587 | ||||||||||||||||||||||
Net loss |
$ | 998 | $ | 1,521 | ||||||||||||||||||||
| As at March 31, 2003 | As at December 31, 2002 | ||||||||||||||||||||||||
Capital Expenditures: |
|||||||||||||||||||||||||
Oil and gas |
$ | 1,113 | $ | 593 | $ | 1,706 | $ | 13,305 | $ | 3,626 | $ | 16,931 | |||||||||||||
Gas-to-liquids |
210 | 1,897 | |||||||||||||||||||||||
| $ | 1,916 | $ | 18,828 | ||||||||||||||||||||||
Identifiable Assets: |
|||||||||||||||||||||||||
Oil & gas |
$ | 63,875 | $ | 25,814 | $ | 89,689 | $ | 64,448 | $ | 25,281 | $ | 89,729 | |||||||||||||
Gas-to-liquids |
17,539 | 17,359 | |||||||||||||||||||||||
| $ | 107,228 | $ | 107,088 | ||||||||||||||||||||||
Page 7 of 19
6. SHARE CAPITAL
Following is a summary of the changes in share capital and stock options outstanding for the three-month period ended March 31, 2003:
| Common Shares | Stock Options | ||||||||||||||||
| Weighted | |||||||||||||||||
| Average | |||||||||||||||||
| Number | Number | Exercise Price | |||||||||||||||
| (thousands) | Amount | (thousands) | Cdn.$ | ||||||||||||||