Oil & Gas Job Listings
------------------------------------------------------------------------ Highlights ------------------------------------------------------------------------ Three Months Six Months ended ended June 30, June 30, 2006 2005 2006 2005 ------------------------------------------------------------------------ (unaudited) Financial ($ thousands, except per unit) Production revenue 226,046 194,961 456,287 382,658 Funds from operations (1) 124,249 109,014 251,656 211,686 Per unit (1) (2) 1.22 1.14 2.49 2.23 Cash distributions 83,201 63,648 164,070 126,932 Per unit 0.99 0.83 1.98 1.65 Percentage of funds from operations distributed 67% 58% 65% 60% Net income 87,425 62,461 162,835 119,941 Per unit (2) 0.86 0.65 1.61 1.26 Total assets 2,024,388 1,799,158 Long-term debt, net of working capital 472,250 345,079 Unitholders' equity 1,138,911 992,086 Capital expenditures: Exploitation and development 59,369 41,103 155,824 92,538 Acquisitions, net 26,371 4,882 31,616 11,441 Weighted average outstanding equivalent trust units (thousands) (2) Basic 101,835 95,621 101,147 95,059 Diluted 105,320 102,675 105,085 102,376 ------------------------------------------------------------------------ Operating (boe conversion - 6:1 basis) Production: Natural gas (mmcf/day) 178 171 179 174 Oil and liquids (bbls/day) 22,465 20,186 22,522 21,021 Total oil equivalent (boe/day) 52,113 48,760 52,382 50,024 Product prices: Natural gas ($/mcf) 6.88 7.43 7.72 7.15 Oil and liquids ($/bbl) 56.08 43.01 50.53 41.37 Operating expenses ($/boe) 7.92 6.79 7.77 6.62 General and administrative expenses ($/boe) 0.54 0.46 0.52 0.45 Cash costs ($/boe) (3) 9.89 8.90 9.69 8.68 Operating netback ($/boe) (4) 28.16 26.68 28.45 25.44 ------------------------------------------------------------------------ NOTES:
(1) Management uses funds from operations to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculations of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with Canadian GAAP. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital and asset retirement expenditures. Funds from operations per unit is calculated based on the weighted average number of trust units outstanding consistent with the calculation of net income per trust unit.
(2) Includes Exchangeable Shares and Exchangeable Units, which are convertible into Trust Units on certain terms and conditions.
(3) Cash costs equal the total of operating, general and administrative, interest expense and cash taxes.
(4) Operating netbacks equal total revenue less royalties, transportation and operating expenses calculated on a BOE basis.
------------------------------------------------------------------------ Three Months ended ---------------------------------------------- Trust Unit Trading June 30, March 31, December 31, September 30, Statistics 2006 2006 2005 2005 ----------------------------------------------------------------------- ($ per unit, except volume) High 37.80 39.86 39.68 37.55 Low 31.51 33.45 29.83 31.13 Close 35.00 37.25 38.10 37.20 Average Daily Volume 252,280 265,472 321,089 276,274 ------------------------------------------------------------------------
MESSAGE TO UNITHOLDERS
Bonavista Energy Trust ("Bonavista" or the "Trust") is pleased to report to its unitholders (the "Unitholders") the consolidated financial and operating results for the three and six months ended June 30, 2006. The results for the second quarter of 2006 represent twelve consecutive quarters of profitability for Bonavista since commencing operations as an energy trust in July 2003. The continued successful execution of Bonavista's proven strategies in the second quarter of 2006 is a testament to the validity and effectiveness of an operationally and technically focused energy trust. The second quarter and first six months of 2006 are also highlighted by continued strong fundamentals and an increased selection of drilling and acquisition opportunities for Bonavista. This favourable environment creates the opportunity for Bonavista to continue to record strong and profitable results, both operationally and financially, for the remainder of 2006 and beyond.
Significant accomplishments for Bonavista include:
- Delivered a total return to its Unitholders of 199%, comprised of a 134% increase in unit price and a 65% return from cash distributions, since inception as an energy trust on July 2, 2003. For the twelve months ended June 30, 2006, the total return to investors was 26%, which is in the top quartile of industry performance. Bonavista's monthly cash distribution is $0.33 per trust unit, which represents a 32% increase in cash distributions since inception as an energy trust. The monthly distribution is comprised of a regular base distribution of $0.28 per trust unit, plus a supplementary distribution of $0.05 per trust unit due to the significant strength in average realized commodity prices. Bonavista's monthly cash distribution to unitholders currently results in a cash on cash yield of approximately 11%;
- Operationally, production volumes averaged 52,113 boe per day during the second quarter of 2006, up 7% as compared to 48,760 boe per day reported in the second quarter of 2005, which also represents a 51% increase over the 34,600 boe per day on commencement as an energy trust on July 2, 2003. Our current production rate is approximately 53,000 boe per day;
- Experienced a successful second quarter drilling program of 45 wells with an overall 98% success rate;
- Continued to actively participate in the acquisition of undeveloped land by investing $8.6 million during the quarter, further enhancing our undeveloped land position and our future drilling prospect inventory to more than two years;
- Invested $85.7 million of capital during the second quarter of 2006, with $59.4 million in exploitation and development activities and $26.3 million in three synergistic acquisitions within our core regions;
- Generated funds from operations of $124.2 million ($1.22 per unit) and distributed 67% to Unitholders for the three months ended June 30, 2006, with the remaining funds from operations used to reinvest in the business to continue growing our production base;
- Continued to record strong profitable growth in the second quarter of 2006 with earnings of $0.86 per unit, average return on equity of 31% and a strong net income to funds from operations ratio of 70%; and
- Completed a new $800 million credit facility with a syndicate of chartered banks. This facility is unsecured, covenant-based which significantly enhances Bonavista's financial flexibility to take advantage of future investment opportunities in 2006 and beyond.
Strengths of Bonavista Energy Trust
Since restructuring into an energy trust in July 2003, Bonavista has maintained a high level of investment activity on its asset base. This activity stems from the operational and technical nature of our trust and our ability to uncover value from our assets within the Western Canadian Sedimentary Basin. Our long-standing technical teams have a solid understanding of our asset base and possess the necessary discipline and commitment to deliver profitable results to our Unitholders for the long-term. We actively participate in undeveloped land acquisitions through either Crown land sales, property purchases or farm-in opportunities, which have continued to add to our already extensive low-risk drilling inventory. This has led to low cost reserve additions, lengthening of the reserve life index, and a growing production base. Our production base is weighted 57% towards natural gas, is geographically focused within select medium depth, multi-zone regions in Alberta, Saskatchewan and British Columbia and has one of the lowest operating cost structures in the oil and natural gas sector. In addition, these high working interest assets are predominantly operated by the Trust, ensuring that operating and capital cost efficiencies are maintained. All of these attributes combined result in top quartile operating netbacks for Bonavista.
Our team brings a successful track record of executing low to medium risk development programs, including both asset and corporate acquisitions, along with sound financial management. Unitholders benefit from a fully internalized, industry leading cost structure, which results in one of the lowest per unit overhead cost structures in the energy trust industry. The management team, along with a strong Board of Directors, possesses extensive experience in oil and natural gas operations, corporate governance and financial management. Directors and management also own approximately 17% of the Trust, resulting in an alignment of interests with all Unitholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis ("MD&A") of the financial condition and results of operations should be read in conjunction with Bonavista Energy Trust's ("Bonavista" or the "Trust") consolidated interim financial statements for the three and six months ended June 30, 2006 and the audited consolidated financial statements and MD&A for the year ended December 31, 2005. Our audited consolidated financial statements, Annual Report, and other disclosure documents for 2005 are available through our filings on SEDAR at www.sedar.com or can be obtained from Bonavista's website at www.bonavistaenergy.com.
Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel of oil equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated.
Forward-Looking Statements - Certain information set forth in this document, including management's assessment of Bonavista's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Bonavista's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions 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. Bonavista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements or if any of them do so, what benefits that Bonavista will derive therefrom. Bonavista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Investors are also cautioned that cash-on-cash yield represents a blend of return of investor's initial investment and a return on investors initial investment and is not comparable to traditional yield on debt instruments where investors are entitled to full return of the principal amount of debt on maturity in addition to a return on investment through interest payments.
Non-GAAP Measurements - Within Management's discussion and analysis, references are made to terms commonly used in the oil and gas industry. Management uses funds from operations to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with Canadian GAAP. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital and abandonment expenditures. Funds from operations per unit is calculated based on the weighted average number of trust units outstanding consistent with the calculation of net income per unit. Netbacks equal total revenue less royalties, transportation and operating expenses calculated on a boe basis. Total boe is calculated by multiplying the daily production by the number of days in the period. Management uses these terms to analyze operating performance and leverage.
Operations - Bonavista's exploitation and development program in the first six months of 2006 led to the drilling of 174 wells in its four core regions, with an overall success rate of 95%. This program resulted in 130 natural gas wells, 35 oil wells and nine dry holes. Bonavista operated 95 of these wells, with an average working interest of 91% in the operated wells. Operatorship and high working interest ownership remain an integral part of our strategy to ensure control over the pace of our activity and control of spending on any given project. In addition to the exploitation and development program, Bonavista executed nine complementary acquisitions in its core regions during the first half of 2006.
Production - As a direct result of Bonavista's active and successful capital programs, production for the second quarter of 2006 increased 7% to 52,113 boe per day from 48,760 boe per day for the same period in 2005. Natural gas production increased 4% in the second quarter of 2006 to 178 mmcf per day from 171 mmcf per day for the same period a year ago, while total oil and liquids production in the second quarter of 2006 increased 11% to 22,465 bbls per day (comprised of 15,745 bbls per day of light and medium oil and 6,720 bbls per day of heavy oil) from 20,186 bbls per day (comprised of 14,174 bbls per day of light and medium oil and 6,012 bbls per day of heavy oil) for the same period a year ago. Bonavista's second quarter production was slightly affected by turnarounds at partner operated production facilities, a pipeline break at a non-operated oil battery, as well as weather related delays. Our current production is approximately 53,000 boe per day consisting of 57% natural gas, 30% light and medium oil and 13% heavy oil. Production for the six months ended June 30, 2006 increased 5% to 52,382 boe per day when compared to 50,024 boe per day for the same period a year ago. More specifically, average natural gas production increased 3% to 179 mmcf per day from 174 mmcf per day in the first six months of 2005 while total oil and liquids production increased 7% to 22,522 bbls per day (comprised of 15,693 bbls per day of light and medium oil and 6,829 bbls per day of heavy oil) from 21,021 bbls per day (comprised of 14,871 bbls per day of light and medium oil and 6,150 bbls per day of heavy oil) in the first six months of 2005. Bonavista will continue to focus on a diversified commodity investment approach to minimize our dependence on any one product.
Production revenue - Production revenue for the second quarter of 2006 increased by 16% to $226.0 million from $195.0 million in the second quarter of 2005. This increase is attributable to a 7% increase in production volumes and an 8% increase in commodity prices on a boe basis. In the second quarter of 2006, natural gas prices averaged $6.88 per mcf, down 7% from $7.43 per mcf for the same period in 2005. The average oil and liquids price increased 30% to $56.08 per bbl (comprised of $58.23 per bbl for light and medium oil and $51.04 per bbl for heavy oil) in the second quarter of 2006 from $43.01 per bbl (comprised of $48.40 per bbl for light and medium oil and $30.31 per bbl for heavy oil) for the same period in 2005. Revenues for the six months ended June 30, 2006 increased by 19% to $456.3 million when compared to $382.7 million for the same period a year ago due to increased production volumes and commodity prices. In the first half of 2006, natural gas prices averaged $7.72 per mcf, up 8% from $7.15 per mcf for the same period in 2005. The average oil and liquids price also increased 22% to $50.53 per bbl (comprised of $55.00 per bbl for light and medium oil and $40.28 per bbl for heavy oil) in the first half of 2006 from $41.37 per bbl (comprised of $46.55 per bbl for light and medium oil and $28.87 per bbl for heavy oil) for the same period in 2005.
Commodity hedging - As part of our financial management strategy, the Trust has adopted a disciplined commodity-hedging program. The purpose of the hedging program is to reduce volatility in the financial results, protect acquisition economics and stabilize cash flow and Unitholder distributions against the unpredictable commodity price environment. At any given period of time, our hedging strategy is restricted to a maximum hedge position of 60% of forecasted production, net of royalties, and primarily utilizes costless collars in our hedging portfolio. This strategy limits our exposure to downturns in commodity prices while allowing for more participation in commodity price increases. For the three and six months ended June 30, 2006, our hedging program resulted in a net gain of $1.4 million and $100,000 respectively. For the three months ended June 30, 2006, the $1.4 million net hedge gain consisted of an $8.5 million gain on natural gas hedges and a $7.1 million loss on crude oil hedges. For the first half of 2006, the $100,000 net hedge gain consisted of a $11.1 million gain on natural gas hedges and a $11.0 million loss on crude oil hedges. A summary of hedging contracts in place as at June 30, 2006 is outlined in note 6 of the Notes to the Interim Consolidated Financial Statements.
Royalties - For the three months ended June 30, 2006 royalties increased 15% from $39.5 million to $45.3 million primarily as a result of the higher revenues derived from the increases in production volumes and commodity prices realized. Royalties as a percentage of revenue for the second quarter decreased slightly from 20.3% in 2005 to 20.0% in 2006, primarily as a result of lower gas prices. For the three months ended June 30, 2006, royalties as a percentage of revenues by product were 22.6% for natural gas, 18.7% for light and medium oil and 14.4% for heavy oil. For the six months ended June 30, 2006, royalties increased 20% to $93.8 million from $78.3 million for the same period a year ago, for similar reasons discussed above. In addition, royalties as a percentage of revenue for the six months period also increased from 20.5% in 2005 to 20.6% in 2006, primarily due to higher average commodity prices. For the six months ended June 30, 2006, royalties as a percentage of revenues by product were 22.6% for natural gas, 19.4% for light and medium oil and 13.8% for heavy oil.
Operating expenses - Operating costs for the second quarter of 2006 were $37.6 million, compared to $30.1 million incurred for the same period a year ago, which was due to higher production volumes and higher per unit costs. The industry is continuing to experience significant pressure on all costs, primarily driven by stronger commodity prices and record levels of activity. These factors resulted in average per unit operating costs for the three months ended June 30, 2006 increasing to $7.92 per boe from $6.79 per boe in the same quarter of 2005. The breakdown of the second quarter 2006 operating costs was $1.14 per mcf for natural gas, $8.74 per bbl for light and medium oil and $10.81 per bbl for heavy oil. Operating costs for the six months ended June 30, 2006 also increased to $73.7 million compared to $59.9 million for the same period a year ago, due to higher production volumes and higher per unit costs. For the six months ended June 30, 2006, operating costs increased to $7.77 per boe from $6.62 per boe in the comparable period of 2005. Operating costs by product for the first half of 2006 were $1.12 per mcf for natural gas, $8.63 per bbl for light and medium oil and $10.50 per bbl for heavy oil. Notwithstanding recent increases, Bonavista continues to place significant emphasis on the control of operating costs and maintains one of the lowest cash cost structures in the industry.
Transportation costs - For the three months ended June 30, 2006, transportation costs were $9.6 million ($2.03 per boe) as compared to $7.0 million ($1.57 per boe) for the same period last year. The increase in transportation costs was primarily due to increasing cost pressures and higher production volumes in the second quarter of 2006 versus the same period in 2005. For similar reasons, transportation costs for the six months ended June 30, 2006 increased to $19.0 million ($2.01 per boe) compared to $14.1 million ($1.55 per boe) for the same period a year ago. Transportation costs by product for the second quarter of 2006 were $0.40 per mcf for natural gas, $0.99 per bbl for light and medium oil and $2.77 per bbl for heavy oil, and for the first half of 2006 were $0.41 per mcf for natural gas, $0.87 per bbl for light and medium oil and $2.75 per bbl for heavy oil.
General and administrative expenses - General and administrative expenses, after overhead recoveries, for the three months ended June 30, 2006, increased 24% to $2.5 million from $2.0 million in the same period in 2005 and increased 22% to $5.0 million for the six months ended June 30, 2006 from $4.1 million in the same period in 2005. On a per boe basis, general and administrative expenses increased 17% for the three months ended June 30, 2006 to $0.54 per boe from $0.46 per boe in the second quarter of 2005 and increased 16% for the six months ended June 30, 2006 to $0.52 per boe from $0.45 per boe in the same period in 2005. These increases are largely due to the higher staffing levels required to manage our operations and increasing cost pressures, primarily driven by strong commodity prices and record levels of industry activity. Through the Technical Services Agreement with NuVista Energy Ltd., Bonavista provides administrative services and receives a fee determined on a cost recovery basis. The fee charged under this agreement was $496,000 related to general and administrative activities rendered for the three months ended June 30, 2006 and $976,000 for the six months ended June 30, 2006. In connection with its Trust Unit Incentive Rights Plan, Bonavista also recorded a unit-based compensation charge of $1.2 million and $2.4 million for the three and six months ended June 30, 2006 respectively, compared to $595,000 and $1.2 million for the same periods of 2005.
Financing expenses - Financing expenses, which include interest expense related to bank debt and convertible debentures, increased to $6.7 million for the three months ended June 30, 2006 from $6.1 million for the same period in 2005 and on a boe basis increased to $1.40 per boe for the three months ending June 30, 2006 from $1.38 per boe in the same period in 2005. For the six months ended June 30, 2006, financing expenses decreased to $11.9 million from $12.2 million for the same period in 2005 and on a boe basis decreased to $1.26 per boe for the first half of 2006 from $1.34 per boe in the same period in 2005. Amortization and accretion expenses related to the Trust's convertible debentures for the three months ended June 30, 2006 were $213,000 compared to $474,000 for the three months ended June 30, 2005. For the six months ended June 30, 2006 amortization and accretion expenses decreased to $461,000 from $959,000 for the same period in 2005. These decreases are largely attributable to the significant conversions of debentures into trust units since June 30, 2005. The amortization component reflects the charge to net income of the debenture issue costs over the term of the debenture. The fair value of the conversion option of the debentures is classified as equity. Over the term of the debentures, the carrying value will accrete to the principal balance at maturity, with the charge to accretion expense on convertible debentures. During the second quarter of 2006, Bonavista paid cash interest of $7.4 million compared to $7.6 million in 2005. For the six months ended June 30, 2006 Bonavista paid cash interest of $12.3 million compared to $12.3 million for the same period in 2005.
Depreciation, depletion and accretion expenses - Depreciation, depletion and accretion expenses increased 14% to $52.8 million for the three months ended June 30, 2006 from $46.5 million in the same period of 2005. For the six months ended June 30, 2006 depreciation, depletion and accretion expenses increased by 12% to $104.2 million from $93.1 million in the same period of 2005. Both increases were due to higher production levels and a larger asset base in 2006. For the three months ended June 30, 2006 the average per unit cost increased to $11.13 per boe from $10.47 per boe in the same period of 2005 and for the six months ended June 30, 2006 the average cost increased to $10.99 per boe from $10.29 per boe for the same period a year ago. These increases are due to the overall higher cost of adding new reserves, which is a trend being experienced throughout the industry.
Income and other taxes - For the three months ended June 30, 2006, the provision for income and other taxes was a reduction of $17.3 million compared to an expense of $232,000 for the same period of 2005. For the six months ended June 30, 2006, the provision for income and other taxes was a reduction of $17.0 million compared to a reduction of $1.1 million for the same period of 2005. The three and six months ended June 30, 2006 include a recovery of $14.3 million relating to a reduction in future federal and provincial income tax rates enacted during the second quarter. In addition, the provision for the three and six months ended June 30, 2006 includes a recovery of the Large Corporations Tax ("LCT") of $472,000 recorded in the first quarter of 2006 to reflect the elimination of LCT effective January 1, 2006. For each of the three and six month periods ended June 30, 2006, Bonavista paid cash relating to capital taxes and installments of $1.0 million and $1.9 million respectively, compared to $1.3 million and $1.9 million for the same periods a year ago.
Funds from operations and net income - For the three months ended June 30, 2006, Bonavista experienced a 14% increase in funds from operations to $124.2 million ($1.22 per unit, basic) from $109.0 million ($1.14 per unit, basic) recorded in the same period in 2005. For the six month period ended June 30, 2006, Bonavista experienced a 19% increase in funds from operations to $251.7 million ($2.49 per unit, basic) from $211.7 million ($2.23 per unit, basic) for the same period in 2005. Net income for the three months ended June 30, 2006, increased to $87.4 million ($0.86 per unit, basic) and represents a 40% increase from $62.5 million ($0.65 per unit, basic) in the second quarter of 2005. For the six months ended June 30, 2006, net income increased to $162.8 million ($1.61 per unit, basic) from $119.9 million ($1.26 per unit, basic) in the first half of 2005. The increases in both funds from operations and net income in both periods were largely attributable to increases in production levels and commodity prices realized. Net income for the three and six months ended June 30, 2006 also increased due to the second quarter recovery of income and other taxes of $14.8 million, relating to the reduction in federal and provincial corporate income tax rates and elimination of the large corporations tax.
Capital expenditures - Capital expenditures for the three month period ended June 30, 2006 were $85.7 million, consisting of $59.4 million of exploitation and development spending and $26.3 million of net property acquisitions. For the same period in 2005 capital expenditures were $46.0 million, consisting of $41.1 million of exploitation and development spending and $4.9 million of net acquisitions. Capital expenditures for the six month period ended June 30, 2006 were $187.4 million, consisting of $155.8 million on exploitation and development spending and $31.6 million on net acquisitions. For the same period in 2005 capital expenditures were $104.0 million, consisting of $92.6 million of exploitation and development spending and $11.4 million of net acquisitions.
Liquidity and capital resources - As at June 30, 2006, bank debt, including working capital deficiency, was $472.3 million with an attractive debt to annualized funds from operations ratio of 1.0:1 (1.1:1 including convertible debentures). With our credit facility recently increased to $800 million, Bonavista now has $327.7 million of unused bank borrowing capability, leaving significant flexibility to finance future expansions in our capital programs or acquisition opportunities as they arise.
In 2006, Bonavista plans to invest approximately $300 million (of which $187.4 million has been spent to the end of June 30, 2006) to expand its core regions, which will be financed through a combination of funds from operations and bank debt. The Trust is committed to the fundamental principle of maintaining financial flexibility and the prudent use of debt. As such, the 2006 capital expenditure program is based on using a conservative amount of debt in our financing structure.
Unitholders' equity - As at June 30, 2006, Bonavista had 102,087,253 equivalent Trust Units outstanding. This includes 12,435,278 Exchangeable Shares, which are exchangeable into 17,909,039 additional Trust Units. The exchange ratio in effect at June 30, 2006 for Exchangeable Shares was 1.44018 to 1. As at August 10, 2006, Bonavista had 102,372,134 equivalent Trust Units outstanding. This includes 12,434,905 Exchangeable Shares which are exchangeable into 18,084,207 additional Trust Units. The exchange ratio in effect at August 10, 2006 for Exchangeable Shares was 1.45431 to 1. In addition, Bonavista had 3,921,750 trust unit incentive rights outstanding at August 10, 2006 with an average exercise price of $25.79 per Trust Unit.
As a result of minimal conversions in 2005 of Exchangeable Shares into Trust Units, Bonavista elected to redeem 10% of its Exchangeable Shares outstanding on March 16, 2006. This redemption allows the Trust to manage the dilution created by the compounding effect of the Exchangeable Shares, maintain an optimal capital and tax efficient trust structure while managing the reinvestment of capital without adverse tax consequences to the Trust and its Unitholders. In connection with this redemption, Bonavista exercised its overriding "redemption call right" to purchase such Exchangeable Shares from holders of record on March 16, 2006. Each redeemed Exchangeable Share was exchanged for Trust Units in accordance with the exchange ratio in effect at March 15, 2006, rounded to the nearest whole trust unit.
As at June 30, 2006, Unitholders' equity included $1.3 million for the ascribed value of the conversion feature of convertible debentures. This amount was determined at the time the debentures were issued and were subsequently reduced by the amounts attributed to debentures that have been converted into Trust Units. Of the 100,000, 7.5% convertible debentures issued on January 29, 2004 there have been 89,518 of these debentures converted into Trust Units, leaving 10,482 debentures with a principal amount of $10.5 million outstanding at June 30, 2006. On December 31, 2004, the Trust issued 135,000, 6.75% convertible debentures in conjunction with a property acquisition in British Columbia. These debentures have a principal amount of $135 million, and from the date of issuance to June 30, 2006 there have been 84,687 of these debentures converted into Trust Units, leaving 50,313 debentures outstanding with a principal amount of $50.3 million.
Distributions - For the three months ended June 30, 2006, the Trust distributed $83.2 million ($0.99 per Trust Unit), amounting to 67% of funds from operations generated during the period, while the remaining 33% of funds was reinvested in exploitation, development and acquisition programs. For the six months ended June 30, 2006, the Trust distributed $164.1 million ($1.98 per Trust Unit), amounting to 65% of funds from operations generated during the period, while the remaining 35% of funds from operations was reinvested to fund exploitation, development and acquisition programs.
Bonavista announces its distribution policy on a quarterly basis. The amount of the cash distributions are determined by the Board of Directors and are dependent upon the commodity price environment, production levels, and the amount of capital expenditures to be financed from funds from operations. Bonavista's current monthly distribution rate is $0.33 per Trust Unit. This monthly distribution is comprised of the base distribution of $0.28 per Trust Unit plus a supplementary distribution of $0.05 per Trust Unit, due to the significant strength in commodity prices currently being realized. The base distribution rate assumes realized commodity prices of CDN $8.00 per gj at AECO for natural gas and CDN $58.00 per bbl at Edmonton for light crude (this equates to approximately US $8.40 per mmbtu NYMEX natural gas and US $50.00 per barrel WTI crude oil). While current natural gas prices are below this level, the current strength in oil prices significantly offsets this shortfall. Our supplementary distribution is anticipated to be maintained while average commodity prices remain strong. The combined regular base and supplementary cash distribution incorporates the withholding of sufficient cash flow to be used for the financing of capital expenditures, in order to maintain the current production base and provide sustainable distributions in the long-term.
Quarterly financial information - The following table highlights Bonavista's performance for the eight quarterly periods ending on September 30, 2004 to June 30, 2006:
------------------------------------------------------------------------ 2006 2005 ------------------------------------------------------------------------ June 30 March 31 December 31 September 30 ------------------------------------------------------------------------ ($ thousands, except per unit amounts) Production revenue 226,046 230,241 288,680 241,084 Net income 87,425 75,410 103,759 79,242 Net income per unit: Basic 0.86 0.75 1.05 0.82 Diluted 0.84 0.74 1.01 0.79 ------------------------------------------------------------------------
2005 2004 (restated) ------------------------------------------------------------------------ June 30 March 31 December 31 September 30 ------------------------------------------------------------------------ ($ thousands, except per unit amounts) Production revenue 194,961 187,697 155,077 154,265 Net income 62,461 57,480 41,780 39,613 Net income per unit: Basic 0.65 0.61 0.62 0.61 Diluted 0.64 0.60 0.61 0.60 ------------------------------------------------------------------------
Since its reorganization into an energy trust on July 2, 2003, Bonavista has experienced growth in production volumes in each quarter. Production revenue has increased over the past eight quarters due to the impact of increased production levels and the trend of increasing oil and natural gas commodity prices. Over this period, production revenue has increased 47% and net income has increased 121%. In the first and second quarters of 2006, production revenue and net income were lower than the last quarter of 2005 primarily due to the decrease in the price of natural gas. For the quarterly periods ending on September 30, 2004 to December 31, 2004, net income has been restated and reduced by the adoption of changes in accounting policies.
Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings
Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Trust is accumulated and communicated to the management as appropriate to allow timely decisions regarding required disclosure. Bonavista's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have concluded that the Trust's disclosure controls and procedures have been designed to provide reasonable assurance that material information related to the Trust, including its consolidated subsidiaries, is made known to them by others within those entities during the period in which the interim filings have been prepared. It should be noted that while the CEO and CFO believe that the Trust's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met.
OUTLOOK
The Trust continues to benefit from all the same qualities that drove the success of Bonavista Petroleum Ltd. as a public corporation prior to its conversion to an energy trust. We continue to apply the same proven principles and execute our strategy in a disciplined and cost-effective manner. The foundation of this strategy is to actively pursue low to medium risk drilling opportunities on the extensive undeveloped land base within our geographically concentrated areas of operations. Despite spending a record amount on exploitation and development activities in 2005 and the first half of 2006 and drilling over 500 wells, our inventory of quality drilling opportunities continues to increase in 2006. This increase in inventory can be directly attributed to the detailed and tireless work of our talented Bonavista team, who possess a strong track record and a solid understanding of the Western Canadian Sedimentary Basin. We also continue to search for strategic acquisition opportunities where we can add value utilizing our own technical expertise. This prudent approach to our capital investment program has been very effective in the past and together with our steadfast commitment and attention to detail, will provide the foundation for the future success of the Trust. Today our activity, efficiency, productivity and profitability remain at the highest levels in our eight year history.
For 2006, Bonavista's capital budget includes drilling approximately 320 wells on existing lands in Bonavista's four Core Regions. Similar to 2005, these locations generally consist of low to medium risk prospects drilled within close proximity of our owned and operated infrastructures. The capital required to complete this drilling program and our complementary acquisition program is approximately $300 million and should result in modest growth in average daily production levels of approximately 53,000 per day in 2006.
We are proud of our achievements since converting to an energy trust in mid-2003 and are very excited about the growing opportunities that exist for Bonavista in the future. We sincerely appreciate the support of all our Unitholders who endorsed our decision to reorganize into the Trust. We would also like to thank our employees for their significant effort and their continued enthusiasm and excitement as we pursue this phase as an energy trust. Our experienced team remains committed to applying the same proven strategies within our efficient trust structure, to continue adding unitholder value in the oil and natural gas business for many years to come.
Consolidated Balance Sheets
June 30, December 31, (thousands) 2006 2005 ------------------------------------------------------------------------ ------------------------------------------------------------------------ (unaudited)
Assets:
Accounts receivable $ 103,834 $ 105,173 Oil and natural gas properties and equipment 1,879,233 1,788,398 Goodwill 41,321 41,321 ------------------------------------------------------------------------ $ 2,024,388 $ 1,934,892 ------------------------------------------------------------------------ ------------------------------------------------------------------------
Liabilities and Unitholders' Equity:
Accounts payable and accrued liabilities $ 140,903 $ 133,080 Long-term debt 435,181 343,802 Other long-term obligations 3,371 4,896 Convertible debentures 57,109 87,866 Asset retirement obligations 88,225 82,819 Future income taxes 160,688 178,919 Unitholders' equity: Unitholders' capital 822,612 769,629 Exchangeable shares 75,963 92,370 Contributed surplus 3,157 2,456 Convertible debentures 1,251 1,892 Accumulated earnings 235,928 237,163 ------------------------------------------------------------------------ 1,138,911 1,103,510 ------------------------------------------------------------------------ $ 2,024,388 $ 1,934,892 ------------------------------------------------------------------------ ------------------------------------------------------------------------
------------------------------------------------------------------------ ------------------------------------------------------------------------ Consolidated Statements of Operations and Retained Earnings
Three Months Six Months ended ended (thousands, except per June 30, June 30, unit amounts) 2006 2005 2006 2005 ------------------------------------------------------------------------ ------------------------------------------------------------------------ (unaudited)
Revenues: Production $ 226,046 $ 194,961 $ 456,287 $ 382,658 Royalties (45,270) (39,505) (93,778) (78,322) ------------------------------------------------------------------------ 180,776 155,456 362,509 304,336 ------------------------------------------------------------------------ Expenses: Operating 37,581 30,116 73,712 59,939 Transportation 9,635 6,952 19,019 14,051 General and administrative 2,540 2,043 4,974 4,092 Financing 6,659 6,124 11,938 12,168 Amortization and accretion of convertible debentures 213 474 461 959 Unit-based compensation 1,200 595 2,373 1,189 Depreciation, depletion and accretion 52,794 46,459 104,218 93,138 ------------------------------------------------------------------------ 110,622 92,763 216,695 185,536 ------------------------------------------------------------------------ Income before taxes 70,154 62,693 145,814 118,800 Income and other taxes (reductions) (17,271) 232 (17,021) (1,141) ------------------------------------------------------------------------ Net income 87,425 62,461 162,835 119,941 Accumulated earnings, beginning of period 231,704 199,244 237,163 205,048 Cash distributions (83,201) (63,648) (164,070) (126,932) ------------------------------------------------------------------------ Accumulated earnings, end of period $ 235,928 $ 198,057 $ 235,928 $ 198,057 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Net income per unit - basic $ 0.86 $ 0.65 $ 1.61 $ 1.26 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Net income per unit - diluted $ 0.84 $ 0.64 $ 1.58 $ 1.23 ------------------------------------------------------------------------ ------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Three Months Six Months ended ended June 30, June 30, (thousands) 2006 2005 2006 2005 ------------------------------------------------------------------------ ------------------------------------------------------------------------ (unaudited)
Cash provided by (used in):
Operating Activities:
Net income $ 87,425 $ 62,461 $ 162,835 $ 119,941 Items not requiring cash from operations: Depreciation, depletion and accretion 52,794 46,459 104,218 93,138 Amortization and accretion of convertible debentures 213 474 461 959 Unit-based compensation 1,200 595 2,373 1,189 Future income taxes (reductions) (17,383) (975) (18,231) (3,541) Asset retirement expenditures (1,553) (805) (2,207) (1,411) Changes in non-cash working capital items (23) 9,031 6,652 (9,320) ------------------------------------------------------------------------
122,673 117,240 256,101 200,955 ------------------------------------------------------------------------ ------------------------------------------------------------------------
Financing Activities: Issuance of equity, net of issue costs 1,468 825 3,045 2,219 Cash distributions (83,201) (63,648) (164,070) (126,932) Change in long-term debt 52,674 (4,827) 91,379 25,131 Changes in non-cash working capital items (548) (1,513) 802 2,583 ------------------------------------------------------------------------
(29,607) (69,163) (68,844) (96,999) ------------------------------------------------------------------------ ------------------------------------------------------------------------
Investing Activities: Exploitation and development (59,369) (41,103) (155,824) (92,538) Property acquisitions (26,371) (4,882) (31,623) (12,003) Property dispositions - - 7 562 Changes in non-cash working capital items (7,326) (2,092) 183 23 ------------------------------------------------------------------------
(93,066) (48,077) (187,257) (103,956) ------------------------------------------------------------------------ ------------------------------------------------------------------------
Change in cash - - - - Cash, beginning of period - - - - ------------------------------------------------------------------------ Cash, end of period $ - $ - $ - $ - ------------------------------------------------------------------------ ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BONAVISTA ENERGY TRUST
Notes to Interim Consolidated Financial Statements
For the three and six months ended June 30, 2006
Bonavista Energy Trust (the "Trust" or "Bonavista") is an open-ended unincorporated investment trust governed by the laws of the Province of Alberta. The Trust was established on July 2, 2003 under a Plan of Arrangement entered into by the Trust, Bonavista Petroleum Ltd. ("BPL") and its subsidiaries and partnerships and NuVista Energy Ltd. Under the Plan of Arrangement, a wholly-owned subsidiary of the Trust amalgamated with BPL and became the successor company. The Trust has two significant subsidiaries in which it owns 100% of the common shares of BPL (excluding the exchangeable shares) and 100% of the units of Bonavista Trust (2003). The activities of these entities are financed through interest bearing notes from the Trust and third party debt as described in the notes to the financial statements. The business of the Trust is carried on through the entities owned by the subsidiaries of the Trust, Bonavista Petroleum Partnership ("BP") and Bonavista Petroleum Limited Partnership. The net income of the Trust is generated from interest on notes advanced to its subsidiaries, royalty payments on oil and gas assets owned by BP, as well as any dividends or distributions paid by its subsidiaries. The Trustee must declare payable to the Trust Unitholders all of the taxable income of the Trust.
The unaudited consolidated financial statements include the accounts of the Trust and its wholly-owned subsidiaries, and have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles. The interim consolidated financial statements and notes should be read in conjunction with the consolidated financial statements for the year ended December 31, 2005. Certain amounts have been reclassified to conform to current year's presentation.
1. Long-term debt:
On August 10, 2006, the Trust completed an $800 million credit facility with a syndicate of chartered banks. This facility is an unsecured, covenant-based, extendible revolving facility, which includes a $50 million working capital facility.
2. Acquisition:
On June 1, 2006, Bonavista acquired oil and natural gas properties through a partnership for cash consideration of $25.8 million and included the results of operations from the date of the acquisition. In conjunction with the acquisition Bonavista, recognized $800,000 of asset retirement obligations.
3. Convertible debentures:
The debt component of the debentures has been recorded net of the fair value of the conversion feature and issue costs. The fair value of the conversion feature of the debentures in Unitholders' equity at the date of issue was $4.7 million. The issue costs are amortized to earnings over the term of the obligation and the debt component of the obligation is adjusted for the amortization and for the portion of issue costs relating to conversions. The debt portion is accreted over the term of the obligation to the principal value on maturity with a corresponding charge to net income. The following table sets out the convertible debenture activities to June 30, 2006:
Debt Equity Component Component ------------------------------------------------------------------------ (thousands) Balance, December 31, 2005 $ 87,866 $ 1,892 Accretion 73 - Issue expenses related to conversions to trust units 530 - Amortization of issue expenses 388 - Conversion to trust units (31,748) (641) ------------------------------------------------------------------------ Balance, June 30, 2006 $ 57,109 $ 1,251 ------------------------------------------------------------------------ ------------------------------------------------------------------------
4. Asset retirement obligations:
The Trust's asset retirement obligations result from net ownership interests in oil and natural gas assets including well sites, gathering systems and processing facilities. The Trust estimates the total undiscounted amount of expenditures required to settle its asset retirement obligations is approximately $435.1 million which will be incurred over the next 51 years. The majority of the costs will be incurred between 2010 and 2036. A credit-adjusted risk-free rate of 7.5% and an inflation rate of 2% were used to calculate the fair value of the asset retirement obligations.
A reconciliation of the asset retirement obligations is provided below:
------------------------------------------------------------------------ Six Months ended June 30, 2006 2005 ------------------------------------------------------------------------ (thousands) Balance, beginning of period $ 82,819 $ 58,531 Accretion expense 3,041 2,107 Liabilities incurred 2,984 903 Liabilities acquired 1,588 631 Liabilities settled (2,207) (1,411) ------------------------------------------------------------------------ Balance, end of period $ 88,225 $ 60,761 ------------------------------------------------------------------------ ------------------------------------------------------------------------
5. Unitholders' capital and exchangeable shares:
a) Authorized:
Unlimited number of voting trust units.
b) Issued and outstanding:
(i) Trust units:
------------------------------------------------------------------------ Number Amount ------------------------------------------------------------------------ (thousands) Balance, December 31, 2005 80,288 $ 769,629 Issued on conversion of convertible debentures 1,257 31,748 Issued on conversion of exchangeable shares 2,321 16,407 Issued upon exercise of trust unit incentive rights 312 3,045 Issue costs, related to debenture conversions - (530) Adjustment to equity component of debenture on conversion - 641 Unit-based compensation - 1,672 ------------------------------------------------------------------------ Balance, June 30, 2006 84,178 $ 822,612 ------------------------------------------------------------------------ ------------------------------------------------------------------------
(ii) Contributed surplus:
------------------------------------------------------------------------ Amount ------------------------------------------------------------------------ (thousands) Balance, December 31, 2005 $ 2,456 Unit-based compensation 2,373 Exercise of trust unit incentive rights (1,672) ------------------------------------------------------------------------ Balance, June 30, 2006 $ 3,157 ------------------------------------------------------------------------ ------------------------------------------------------------------------
(iii) Exchangeable shares:
------------------------------------------------------------------------ Number Amount ------------------------------------------------------------------------ (thousands) Balance, December 31, 2005 14,101 $ 92,370 Exchanged for trust units (1,666) (16,407) ------------------------------------------------------------------------ Balance, June 30, 2006 12,435 $ 75,963 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Exchange ratio, end of period 1.44018 - ------------------------------------------------------------------------ Trust units issuable on exchange 17,909 $ 75,963 ------------------------------------------------------------------------
c) Trust unit incentive rights plan:
For the three months ended June 30, 2006 there were 51,800 trust unit incentive rights issued with an average exercise price of $37.21 per trust unit and an estimated fair value of $9.26 per trust unit. As at June 30, 2006 there were 2,653,275 trust unit rights outstanding with an average exercise price of $21.76 per trust unit.
d) Per unit amounts:
The following table summarizes the weighted average trust units, exchangeable shares and convertible debentures used in calculating net income per unit:
------------------------------------------------------------------------ Six Months ended, June 30, 2006 ------------------------------------------------------------------------ (thousands) Trust units 82,528 Exchangeable shares converted at period end exchange ratio 18,619 ------------------------------------------------------------------------ Basic equivalent trust units 101,147 Convertible debentures 2,744 Trust unit incentive rights 1,194 ------------------------------------------------------------------------ Diluted equivalent trust units 105,085 ------------------------------------------------------------------------ ------------------------------------------------------------------------
For the purposes of calculating net income per trust unit on a diluted basis, the net income has been increased by $3.0 million with respect to the accretion, amortization and interest on the convertible debentures.
6. Hedge instruments:
a) Financial instruments:
As at June 30, 2006, the Trust has hedged by way of costless collars to sell crude oil and natural gas as follows:
------------------------------------------------------------------------ Volume Average Price Term ------------------------------------------------------------------------ 10,000 gjs/d CDN$ 8.50 - CDN$ 12.25 - AECO July 1, 2006 - October 31, 2006 7,000 bbls/d US$ 53.43 - US$ 65.54 - WTI July 1, 2006 - September 30, 2006 7,000 bbls/d US$ 55.29 - US$ 70.94 - WTI October 1, 2006 - December 31, 2006 1,000 bbls/d CDN$ 46.28 - CDN$ 60.89 - Bow River October 1, 2006 - December 31, 2006 4,000 bbls/d US$ 59.00 - US$ 80.41 - WTI January 1, 2007 - March 31, 2007 3,000 bbls/d US$ 61.67 - US$ 81.37 - WTI April 1, 2007 - June 30, 2007 ------------------------------------------------------------------------
As at June 30, 2006, the market deficiency of these financial instruments was approximately $10.9 million.
b) Physical purchase contracts:
As at June 30, 2006, the Trust has entered into direct sale costless collars to sell natural gas as follows:
------------------------------------------------------------------------ Average Price Volume (CDN$/gj) Term ------------------------------------------------------------------------ 40,000 gjs/d $ 7.63 - $ 11.16 July 1, 2006 -- October 31, 2006 20,000 gjs/d $ 8.25 - $ 11.30 November 1, 2006 -- March 31, 2007 ------------------------------------------------------------------------
INVESTOR INFORMATION
Bonavista Energy Trust is a natural gas weighted energy trust which is committed to maintaining its emphasis on operating high quality oil and natural gas properties, delivering consistent distributions to unitholders and ensuring financial strength and sustainability.
Corporate information provided herein contains forward-looking information. The reader is cautioned that assumptions used in the preparation of such information, particularly those pertaining to cash distributions, production volumes, commodity prices, operating costs and drilling results, which are considered reasonable by Bonavista at the time of preparation, may be proven to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. There is no representation by Bonavista that actual results achieved during the forecast period will be the same in whole or in part as those forecast.
Contact:
Keith A. MacPhail Bonavista Energy Trust President & CEO (403) 213-4315 Executive Vice President & CFO Ronald J. Poelzer (403) 213-4308 Calgary, AB T2P 3H2 700, 311 - 6th Avenue SW (403) 213-4300
Source: BONAVISTA ENERGY TRUST
