-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TX+2D4oXmc9EtbcWV7RSx/9cRj7OuQBuPTHdS6juPdTyL3iqYAhDCBhBD4nsNUgg hNPW7oBXU+Aa3inANHg4Zg== 0000891020-98-000821.txt : 19980518 0000891020-98-000821.hdr.sgml : 19980518 ACCESSION NUMBER: 0000891020-98-000821 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTIMA PETROLEUM CORP CENTRAL INDEX KEY: 0000872248 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 980115468 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19020 FILM NUMBER: 98622109 BUSINESS ADDRESS: STREET 1: 600 HOWE ST STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA V6C 2T5 STATE: A1 BUSINESS PHONE: 6046846886 MAIL ADDRESS: STREET 1: 600 HOWE ST STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA V6C 2T5 STATE: A1 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q __________ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: Commission file number: March 31, 1998 019020 OPTIMA PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) CANADA 98-0115468 (State of Incorporation) (I.R.S. Employee Identification No.) 600-595 HOWE STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2T5 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (604) 684-6886 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 _X_ NO ___. Number of shares of Common Stock outstanding at May 1, 1998 11,002,346 2 OPTIMA PETROLEUM CORPORATION QUARTERLY REPORT ON FORM 10-Q INDEX PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS .............................................. 3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ......................................... 14 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................. 16 SIGNATURES
-2- 3 OPTIMA PETROLEUM CORPORATION Consolidated Balance Sheets
March 31 December 31 1998 1997 ------------ ------------ ASSETS (UNAUDITED) (AUDITED) CURRENT Cash and cash equivalents $ 5,033,461 $ 5,660,354 Accounts receivable (Note 12(b)) 1,942,974 2,220,151 Note receivable - current portion (Note 4) 128,599 129,861 Cash in trust -- 715,250 ------------ ------------ 7,105,034 8,725,616 OTHER Cash held in trust (Note 5) 705,893 703,996 Advances to operators (Note 6) 473,886 547,200 Note receivable - long term portion (Note 4) 262,502 265,077 Loan receivable (Notes 2,13) 849,960 -- Petroleum and natural gas interests, full cost method (Note 7) 17,285,171 17,695,968 Deferred charges 276,308 205,486 ------------ ------------ $ 26,958,754 $ 28,143,343 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Accounts payable and accrued liabilities $ 662,093 $ 868,796 ------------ ------------ 662,093 868,796 REVENUE IN DISPUTE (Note 12(a)) 1,047,664 1,023,998 LONG-TERM DEBT (Note 11) 141,660 143,050 SITE RESTORATION AND ABANDONMENT 369,297 369,297 SHAREHOLDERS' EQUITY Share capital (Note 9) Authorized 100,000,000 common shares Issued 11,002,346 (1997 - 11,002,346) common shares 30,891,689 30,891,689 Contributed surplus 608,222 608,222 Deficit (6,761,870) (5,761,709) ------------ ------------ 24,738,041 25,738,202 ------------ ------------ $ 26,958,754 $ 28,143,343 ============ ============
See accompanying notes to consolidated financial statements. ON BEHALF OF THE BOARD /s/ Ronald P. Bourgeois, Director /s/ Robert L. Hodgkinson, Director 3 4 OPTIMA PETROLEUM CORPORATION Consolidated Statements of Operations and Deficit (unaudited)
Three months ended March 31, 1998 1997 ----------- ----------- OPERATING INCOME Petroleum and natural gas sales $ 1,119,473 $ 3,380,171 Royalties and production taxes 355,627 993,677 Operating costs 338,175 360,311 ----------- ----------- 425,671 2,026,183 EXPENSES General and administrative (Schedule) 386,039 394,990 ----------- ----------- EARNINGS BEFORE INTEREST, DEPLETION, DEPRECIATION, AMORTIZATION AND INCOME TAXES 39,632 1,631,193 Depletion and depreciation 872,714 1,278,000 Interest and other revenue (99,109) (13,344) Foreign exchange loss 246,462 7,251 Interest and bank charges 2,644 134,456 Amortization of deferred financing costs 17,082 17,082 ----------- ----------- NET INCOME (LOSS) (1,000,161) 207,748 DEFICIT, beginning of period (5,761,709) (926,489) ----------- ----------- DEFICIT, end of period $(6,761,870) $ (718,741) =========== =========== NET INCOME (LOSS) PER SHARE $ (0.09) $ 0.02 =========== ===========
See accompanying notes to consolidated financial statements. 4 5 OPTIMA PETROLEUM CORPORATION Consolidated Statements of Changes In Financial Position (unaudited)
Three months ended March 31, 1998 1997 ----------- ----------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net income (loss) for the period $(1,000,161) $ 207,748 Items not involving cash Depletion, depreciation and amortization 889,796 1,295,082 ----------- ----------- (110,365) 1,502,830 Changes in non-cash working capital: Accounts receivable 277,177 (677,884) Accounts payable and accrued liabilities (206,703) 8,295 Cash in trust 713,353 -- ----------- ----------- 673,462 833,241 ----------- ----------- FINANCING ACTIVITIES Issue (repurchase) of common shares (net of issue expenses) -- (81,180) Increase in (repayment of) bank debt (1,390) 34,270 Note receivable 3,837 (5,011) Deferred Charges (87,904) -- Revenue in dispute 23,666 Loan receivable (849,960) -- ----------- ----------- (911,751) (51,921) ----------- ----------- INVESTING ACTIVITIES Petroleum and natural gas interests (461,918) (1,409,464) Advances to operators 73,314 (219,284) Cash held in trust -- (17,110) Deferred charges -- (159) ----------- ----------- (388,604) (1,646,017) ----------- ----------- INCREASE (DECREASE) IN CASH (626,893) (864,697) CASH AND CASH EQUIVALENTS, beginning of period 5,660,354 2,055,062 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 5,033,461 $ 1,190,365 =========== ===========
See accompanying notes to consolidated financial statements. 5 6 OPTIMA PETROLEUM CORPORATION Schedules of Consolidated General and Administrative Expense (unaudited)
Three months ended March 31, 1998 1997 -------- -------- Consultants $128,154 $177,057 Office expense 110,922 105,701 Legal, audit and tax 51,818 15,762 Public listing 32,471 25,225 Office rent 32,102 21,099 Travel 17,609 17,376 Investor communication 12,963 31,548 Directors' fees -- 1,222 -------- -------- $386,039 $394,990
6 7 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements March 31, 1998 (unaudited) Page 7 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31,1997, as filed with the Securities Exchange Commission. The consolidated financial statements included herein as of March 31, 1998, and for the three month periods ended March 31, 1998 and March 31, 1997 are unaudited. Management has reflected all adjustments, consisting of normal recurring adjustments, which it believes are necessary to present fairly the financial position as at March 31, 1998 and the results of operations and cash flows for the three month periods ended March 31, 1998 and March 31, 1997. (b) Basis of consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Optima Energy (U.S.) Corporation. All intercompany transactions and balances have been eliminated. (c) Cash and cash equivalents Cash and cash equivalents include short-term investments with a maturity of ninety days or less at the time of issue. (d) Petroleum and natural gas interests The Company follows the full cost method of accounting for petroleum and natural gas interests whereby all costs of exploring and developing petroleum and natural gas reserves, net of government grants, are capitalized by individual country cost centre. Such costs include land acquisition costs, geological and geophysical expenses, costs of drilling both productive and non-productive wells and overhead charges directly related to acquisition, exploration and development activities. The total carrying value of the Company's petroleum and natural gas interests, less accumulated depletion, is limited to the estimated future net revenue from production of proved reserves, based on unescalated prices and costs plus the lower of cost and net realizable value of unproved properties, less estimated future development costs, general and administrative expenses, financing costs and income taxes. The carrying value of unproved properties is reviewed periodically to ascertain whether impairment has occurred. Where impairment has occurred, the costs have been written down to their net realizable value. For each cost centre, the costs associated with proved reserves are depleted on the unit-of-production method based on an independent engineering estimate of proved reserves, after royalties, with natural gas converted to its energy equivalent at a ratio of six thousand cubic feet of natural gas to one barrel of oil. Site restoration and abandonment costs, net of expected recoveries for production equipment and facilities, at the end of their useful life, are provided for on a unit-of-production basis. - -------------------------------------------------------------------------------- 8 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements March 31, 1998 (unaudited) Page 8 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow-through share arrangements are renounced to investors in accordance with income tax legislation. Petroleum and natural gas interests are reduced by the estimated renounced income tax benefits when the expenditures are incurred. Equipment is depreciated on a straight-line basis over five years. (e) Deferred charges Debt financing costs are amortized on a straight line basis over the terms of the related loans. (f) Foreign currency translation The operations of the Company's U.S. subsidiary are considered integrated with the operations of the Company, and thus, are translated under the temporal method. Under this method, transactions of the Company and its subsidiaries that are denominated in foreign currencies are recorded in Canadian dollars at exchange rates in effect at the related transaction dates. Monetary assets and liabilities denominated in foreign currencies are adjusted to reflect exchange rates at the balance sheet date. Exchange gains and losses arising on the translation of monetary assets and liabilities, except as they relate to long-term debt, are included in the determination of income for the year. Unrealized foreign exchange gains and losses related to long-term debt are deferred and amortized over the remaining term of the related debt. (g) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of rates for depreciation, depletion and amortization and the impairment of petroleum and natural gas interests. Actual results could differ from these estimates. (h) Fair value of financial instruments Financial instruments include cash and cash equivalents, cash in trust, accounts receivable, note receivable, accounts payable and accrued liabilities and the current and long term portions of long term debt. Fair values approximate carrying values for these financial instruments since they are short term in nature, receivable or payable on demand, or bear interest at floating rates. 2. MERGER OF OPTIMA ENERGY (U.S.) COMPANY On February 11, 1998, the Company entered into a Plan and Agreement of Merger ("Agreement") whereby the Company's wholly owned U.S. subsidiary Optima Energy (U.S.) Corporation would merge with American Explorer, L.L.C., ("American") a Louisiana limited liability company, Goodson Exploration Company ("Goodson"), a Louisiana corporation, NAB Financial, L.L.C. ("NAB"), a Louisiana limited liability company, and Dexco Energy, Inc. ("Dexco"), a Louisiana corporation (American, Goodson, NAB and Dexco collectively, - -------------------------------------------------------------------------------- 9 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements March 31, 1998 (unaudited) Page 9 - -------------------------------------------------------------------------------- 2. MERGER OF OPTIMA ENERGY (U.S.) COMPANY (CONTINUED) referred to as the acquired companies). Goodson, NAB and Dexco are holding companies which own all the outstanding common shares of American. American is engaged in the acquisition of and exploration for oil and natural gas. Under the terms of the Agreement, the acquired companies would be merged with the Company's U.S. subsidiary in exchange for 7,335,001 common shares of the Company to be issued to the former shareholders of the acquired companies, which will represent approximately 40% of the post acquisition outstanding common shares of the Company. In addition, the Company will issue 1,667,001 in contingent stock issue rights which will be exchangeable for common shares of the Company if the Company's share price exceeds U.S. $5 per share for 20 consecutive trading days. The contingent stock issue rights will terminate on the third anniversary after issuance if the condition stated above is not met within the three year time limit. In addition, the Company was required to provide American with a loan agreement of U.S. $2.5 million prior to March 1, 1998, with an initial draw of U.S. $500,000 available at that date and further draws based on the consummation of this Agreement. The Agreement is subject to a number of conditions which must be met to give effect to the merger including but not limited to the following: - the receipt of various regulatory approvals; - the approval of the Agreement by the shareholders of the Company and the shareholders of the acquired companies; and - due diligence by both the Company and the acquired companies. If the agreement is consummated, the Company will account for the acquisition using the purchase method. The estimated purchase price based on the recent trading history of the Company's common shares is approximately $14 million. 3. SALE OF CANADIAN PETROLEUM AND NATURAL GAS INTERESTS On May 30, 1997 the Company closed the sale of a substantial portion of its Canadian petroleum and natural gas interests for cash proceeds of $16,750,000. 4. NOTE RECEIVABLE The note is due on June 18, 2000, bears no interest, is repayable in four equal installments of $90,780 U.S. which commenced June 18, 1997 and is secured by a mortgage on certain U.S. oil and gas properties. 5. CASH HELD IN TRUST As a condition of a U.S. oil and gas property acquisition, the Company is obliged to keep cash on deposit to fund future abandonment costs. - -------------------------------------------------------------------------------- 10 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements March 31, 1998 (unaudited) Page 10 - -------------------------------------------------------------------------------- 6. ADVANCES TO OPERATORS The Company maintains joint accounts with operators engaged by the Company to perform exploration and development work on its petroleum and natural gas interests. 7. PETROLEUM AND NATURAL GAS INTERESTS
March 31, December 31, 1998 1997 ------------ ------------ Petroleum and natural gas interests $ 34,937,408 $ 34,477,861 Other equipment 215,806 213,436 ------------ ------------ 35,153,214 34,691,297 Accumulated depreciation, depletion and write-offs (17,868,043) (16,995,329) ------------ ------------ $ 17,285,171 $ 17,695,968 ============ ============
As at March 31, 1998, unproved properties with capitalized costs of $2,911,126 (December 31, 1997 - $2,911,126) were not subject to depletion. It is expected that these properties will be evaluated over the next one to three years. 8. LONG-TERM DEBT Revolving $5,000,000 (U.S.) bank credit line, with a borrowing base of $3,250,000 (U.S.) drawn to $100,000 (U.S.) bearing interest monthly at U.S. Base Rate plus 1.5%, secured by a revolving note due May 15, 1999 and U.S. oil and gas properties. 9. SHARE CAPITAL (a) Authorized The authorized share capital consists of 100,000,000 common shares without par value. (b) Issued
Number of Share Shares Capital ---------- ----------- Balance at March 31, 1998 and December 31, 1997 11,002,346 $30,891,689 ========== ===========
- -------------------------------------------------------------------------------- 11 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements March 31, 1998 (unaudited) Page 11 - -------------------------------------------------------------------------------- 9. SHARE CAPITAL (CONTINUED) (c) Reserved in respect of options
Exercise Exercisable Holder Number Price On or Before ------ ------ ----- ------------ Options Company directors and employees 193,000 $3.50 April 3, 1998 50,000 $3.55 April 3, 1998 100,000 $4.05 July 25, 1998 525,000 $4.15 June 12, 1999 50,000 $3.50 June 2, 1999 Non-related persons 120,000 $3.50 April 3, 1998 125,000 $3.50 June 2, 1999 --------- 1,163,000 =========
(d) Net income (loss) per share Net income (loss) per share has been calculated based on the following weighted average numbers of shares outstanding:
1998 1997 ---------- ---------- Weighted average number of shares 11,159,663 11,313,653 ========== ==========
10. RELATED PARTY TRANSACTIONS In the three months ended March 31, 1998, the Company was charged consulting expenses of $105,000 (1997- $104,445) by companies related by virtue of common directors. Office expense includes $29,400 (1997 - $29,400) paid to a related company. 11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (a) Accounting for income taxes Under the asset and liability method of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), deferred income tax assets and liabilities, reduced by a valuation allowance to an amount more likely than not to be recovered, are measured using enacted tax rates for the future income tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. The approximate effect of each component of deferred income tax assets and liabilities at March 31, 1998 is as follows: - -------------------------------------------------------------------------------- 12 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements March 31, 1998 (unaudited) Page 12 - -------------------------------------------------------------------------------- 11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (CONTINUED) Net operating losses deferred tax assets $ 5,137,000 Petroleum and natural gas interests deferred tax liabilities (44,000) ----------- Net deferred tax assets 5,093,000 Less valuation allowance (5,093,000) ----------- Deferred tax assets, net of valuation allowance $ -- ============
The valuation allowance equals the entire amount of the net deferred tax assets as the recognition criteria for deferred tax assets has not been met. Therefore, there is no effect of applying the provisions of SFAS 109 on the Company's financial statements. (b) Consolidated statements of changes in financial position Under United States accounting principles, the following items are not considered to be cash items and would not appear in the consolidated statements of changes in financial position: (i) the conversion of debentures (ii) the acquisition of subsidiary in exchange for the issuance of shares; and (iii) the issuance of shares on settlement of consulting fees and directors fees payable. As a result, cash flows from operating, financing and investing activities would be presented as follows under United States accounting principles:
1998 1997 --------- ----------- Cash flows from: Operating activities $ 673,462 $ 838,686 Financing activities (911,751) (57,366) Investing activities (388,604) (1,646,017) --------- ----------- Increase (Decrease) in cash $(626,893) $ (864,697) ========= ===========
Under United States accounting principles, the following supplementary cash flow information would be disclosed:
1998 1997 ------ -------- Interest paid $2,644 $134,456 ------ -------- Income taxes paid -- -- ====== ========
- -------------------------------------------------------------------------------- 13 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements March 31, 1998 (unaudited) Page 13 - -------------------------------------------------------------------------------- 11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (CONTINUED) (c) Cash flow per share Disclosure of cash flow per share information is prohibited under United States generally accepted accounting principles. 12. LITIGATION (a) S.W. HOLMWOOD The Company is a party to litigation in the United States District Court, Western District of Louisiana (Amoco Production Company vs. Texas Meridian Resource Exploration, Inc.) by virtue of its master participation agreement with Meridian Resource Corporation (formally known as Texas Meridian Resource Corporation). The litigation enures from a joint exploration agreement between the plaintiff and defendant whereby adjoining petroleum and natural gas leases were pooled on a 50% / 50% joint ownership basis. Two producing oil wells have been drilled and placed on production. The plaintiff is claiming a breach of trust and demands surrender of 100% of the wells ownership on a retroactive basis and has received a favorable summary judgement. The operator pending the court's granting of damages intends to appeal the judgement. The Company holds a beneficial 4% working interest. Since the outcome of this litigation is not determinable, the Company has recorded 100% of the cumulative net operating income to date aggregating to $1,047,664 as Revenue in Dispute. (b) WILDHAY The Company is party to a statement of claim and counterclaim with a drilling contractor in the Judicial District of Calgary, Court of Queen's Bench, Alberta. The nature of this litigation is based on a contract wherein the drilling contractor drilled a well on behalf of the Company and a joint venture partner. The working interest participants are demanding $2,738,568 in throw away costs and expenses plus $1,001,755 for loss of the original well as well as $5,932,000 of reservoir damage from the drilling contractor. The well in question is reflected in property and equipment at $1.1 million and an additional $1.2 million is included as a receivable from the Company's joint venture partner. 13. SUBSEQUENT EVENT On April 15, 1998, the company issued a draw of U.S. $500,000 under the terms of the Plan and Agreement of Merger (see note #2). - -------------------------------------------------------------------------------- 14 PART I -- FINANCIAL INFORMATION CONTINUED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles. The value of the U.S. Dollar in relation to the Canadian Dollar was U.S. $1.00 equal $1.4333 CDN as at May 12, 1998.
- --------------------------------------------------------------------------------------------------------------- Working Interest Quarter Ended March 31 1998 1998 - --------------------------------------------------------------------------------------------------------------- Percentage Increase Increase CDN$ 1998 1997 (Decrease) (Decrease) - --------------------------------------------------------------------------------------------------------------- Volume Natural Gas (mcf) 138,355 310,429 (172,074) (55%) Oil (bbls) 29,746 37,596 (7,850) (21%) Average Price per Unit USA Natural Gas (mcf) $3.56 $4.26 ($0.70) (16%) Oil (bbls) $21.18 $30.45 ($9.27) (30%) Gross Revenue, Natural Gas $489,340 $1,321,957 (832,617) (63%) Oil $630,133 $1,144,691 (514,588) (45%) - --------------------------------------------------------------------------------------------------------------- TOTAL REVENUE $1,119,473 $2,466,648 (1,347,115) - ---------------------------------------------------------------------------------------------------------------
(NOTE: The aforementioned information has been restated for 1997 to reflect the sale of Canadian assets on May 30, 1997, effective January 1, 1997. Previously reported total revenue for the first quarter of 1997 included Canadian petroleum and natural gas sales of $913,523.) RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998, AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1997 The Company realized a net loss of $1,000,161 for the first quarter of 1998 or $0.09 per share as compared to a profit of $207,748 or $0.02 per share in the first quarter of 1997. Earnings before interest, depletion, depreciation and taxes ("EBITDA") declined 98% to $39,632 from $1,631,193 in 1996. EBITDA on a per share basis was $0.01 per share down from $0.15 per share in 1997. The weighted average of shares in the first quarter of 1997 was 11,002,346 as compared to 11,313,653 in 1997. The decline in financial results is due to the following factors: -Canadian petroleum and natural gas assets were sold on May 30, 1997. On an historical basis, the Canadian operations provided between 25% and 33% of consolidated net revenue -decline in commodity prices of approximately 30% over the same reporting period last year -the Company's decision to curtail exploration and development activities pending a corporate transaction -curtailed oil production at S.W. Holmwood with Meridian Resource Corporation due to outstanding litigation -unanticipated decline in oil production at East Cameron. -14- 15 OPERATING REVENUES. Gross revenue decreased by $1,347,115 to $1,119,473 from $2,466,648 a year earlier, a decline of 55%. Actual production on a BOE basis (6 MCF of natural gas equal 1 barrel of oil) fell 41% whereas commodity prices declined 16% for natural gas and 30% for crude oil. OPERATING EXPENSES. Oil and natural gas operating expenses were $338,175 as compared to $360,311 a year earlier. The first quarter for 1997 included $174,812 from Canadian operations. Operating expenses for US operations increased to $338,175 from $185,499 a year earlier. On a BOE equivalent basis, operating expenses increased to $6.40 per BOE from $2.08 BOE in the first quarter of 1997 in respect of US operations. The increase is due to workovers at Turtle Bayou in January, 1998. The operating expenses for the month of March, 1998 have been reduced to $3.71 per BOE. INTEREST AND OTHER INCOME. Interest income increased to $99,109 from $13,344 a year earlier whereas interest expense and bank charges fell to $2,644 from $134,456 in the first quarter of 1997. This improvement is due to the cash proceeds on the sale of Canadian assets on May 30, 1997. The foreign exchange loss of $246,462 as compared to $7,251 a year earlier results from the reality that the Company reports in Canadian $ dollars whereas over 90% of its assets and liabilities are US $ dollar denominated. Accordingly a minor fluctuation in the exchange rate results in a foreign currency translation gain or loss which could be material for financial reporting but does not reflect a realized gain or loss. DEPLETION, DEPRECIATION AND AMORTIZATION. Depletion and depreciation was $872,000 in the first quarter of 1998 as compared to $1,299,420 a year earlier. The first quarter of 1997 included $412,000 of depletion and depreciation in respect of Canadian petroleum and natural gas assets which were sold on May 30, 1997. In respect of US operations, on a BOE basis the 1998 expense was $16.51 as compared to $9.69 per BOE a year earlier (this calculation is based on 6 MCF of natural gas equal 1 barrel of oil). The amortization expense of $17,083 is identical to a year earlier as it reflects the amortization of costs on a straight line basis. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses of $386,039 reflect a modest decline of 2% from $394,990 a year earlier. On a BOE basis, converting natural gas to its equivalent barrels of oil at a ratio of 6 mcf equals 1 barrel, general and administrative expenses increased to $7.13 per BOE as compared to $4.42 per BOE in 1996 an increase of 61%. This increase on a BOE basis is a result of the decline in production from the first quarter of 1997. BALANCE SHEET. Total assets as at March 31, 1998 were $26,975,836 as compared to $41,383,801 a year earlier and $28,143,343 as at December 31, 1997. Petroleum and natural gas interests declined marginally since the beginning of the fiscal year as capital expenditures of $461,918 were offset by depletion and depreciation expenses of $872,714. Working capital has decreased to $6,442,941 from $7,856,820 as at December 31, 1997. Shareholder's equity has decreased by $983,079 since December 31, 1997 reflecting the net loss for the fiscal quarter. Certain of the foregoing statements may be deemed "forward-looking statements" within the meaning of the Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Certain risks and uncertainties inherent in the Company's business are set forth in the filings of the Company with the Securities and Exchange Commission. These risks include price changes for oil and gas, risks regarding estimates of reserves production risks government regulations and general risks regarding the exploration for and the production of oil and gas reserves. -15- 16 PART II-OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to security holders for a vote in the quarter ended March 31, 1998. The Company has filed a preliminary form of the Proxy Statement and Information Circular in respect of the Plan and Agreement of Merger between Optima Petroleum Corporation and American Explorer, L.L.C. with the Securities and Exchange Commission. Accordingly the annual general meeting of shareholders will be scheduled upon receiving notification of acceptance. It is expected that the meeting will occur prior to the end of June, 1998. ITEM.6. EXHIBITS AND REPORTS ON FORM 8-K. Attached is a Form 8-K dated February 28, 1998 announcing the merger agreement between Optima Petroleum Corporation and American Explorer, L.L.C. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OPTIMA PETROLEUM CORPORATION AND SUBSIDIARIES (Registrant) Date: May 13, 1998 By: /s/ Robert L. Hodgkinson ------------------------ Robert L. Hodgkinson President-CEO By: /s/ Ronald P. Bourgeois ------------------------- Ronald P. Bourgeois Chief Financial Officer-Secretary -16- 17 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of the Report: February 28, 1998 Commission File No. 019020 OPTIMA PETROLEUM CORPORATION (Exact Name of Registrant as Specified in its Charter) CANADA 98-0115468 (State of Incorporation) (I.R.S. Employee Identification No.) #600, 595 HOWE STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2T5 (Address of Principal Executive Offices) (Zip Code) (604) 684-6886 Registrant's Telephone Number Including Area Code 18 ITEM 2 - DISPOSITION OF ASSETS The Company has entered into a definitive agreement with American Explorer, L.L.C., a privately owned independent oil and gas company based in Lafayette, Louisiana calling for the merger of these two companies. The merger is subject to approval by Optima shareholders, U.S. and Canadian regulatory authorities, an independent fairness opinion and customary conditions to closing. Attached is a news release which was delivered to the Toronto Stock Exchange and NASDAQ Stock Market on February 12, 1998, prior to the opening for stock trading. ITEM 7 - EXHIBITS No. Description 7.1 Press Release dated February 12, 1998 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, Registrant has duly caused this report to be signed on behalf of the undersigned hereunto duly authorized. March 5, 1998 OPTIMA PETROLEUM CORPORATION /s/ RONALD P. BOURGEOIS ---------------------------------------- RONALD P. BOURGEOIS CHIEF FINANCIAL OFFICER 19 [OPTIMA LETTERHEAD] OPTIMA PETROLEUM CORPORATION AND AMERICAN EXPLORER, L.L.C. ANNOUNCE MERGER AGREEMENT HOUSTON, TEXAS - FEBRUARY 12, 1998 - OPTIMA PETROLEUM CORPORATION (NASDAQ: OPPCF) and American Explorer, L.L.C., a privately owned independent oil and gas company based in Lafayette, Louisiana, today announced the signing of a definitive agreement calling for the merger of these two companies. This merger is subject to approval by Optima shareholders, U.S. and Canadian regulatory authorities, an independent fairness opinion and customary conditions to closing. Under the terms of the agreement, American Explorer owners will receive 7.335 million shares of Optima common stock and rights to acquire an additional 1.667 million shares of Optima common stock issuable upon the occurrence of certain post closing events in return for 100% of American Explorer, L.L.C. and associated companies. It is anticipated that the Annual General Meeting of Optima shareholders will be held on or before May 31, 1998 with the closing of these transactions to occur immediately thereafter. Optima and American Explorer are both engaged in the exploration, development and production of oil and gas, primarily in the U.S. Gulf Coast region and have previously worked together on a number of oil and gas projects. As part of the merger with American Explorer, Optima will be redomiciled as a U.S. (Delaware) corporation headquartered in Lafayette, Louisiana with exploration offices in Houston, Texas. Canadian offices will be closed. Optima shareholders will be asked to elect a new seven person board of directors to be effective at the closing, to include Charles T. Goodson, Alfred J. Thomas, II, Ralph J. Daigle and Robert R. Brooksher, of American Explorer and Daniel G. Fournerat, outside counsel to American Explorer. William C. Leuschner and Robert L. Hodgkinson, both current officers of Optima will continue as directors. Mr. Goodson will become President and Chief Executive Officer of Optima, Mr. Thomas becoming Chief Operating Officer and Mr. Daigle becoming Senior Vice President, Exploration. Mr. Brooksher shall become Chief Financial Officer. Optima shares are traded on the Nasdaq National Market System under the symbol "OPPCF" and on the Toronto Stock Exchange under the symbol "OPP". For additional information, please contact: OPTIMA PETROLEUM CORPORATION AMERICAN EXPLORER, L.L.C. Mr. Robert L. Hodgkinson Mr. Charles T. Goodson (604) 684-6886 (318) 232-7028 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 CANADIAN DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 0.6976 5,033,161 0 1,942,974 0 0 7,105,034 35,153,124 17,868,043 26,975,836 662,093 0 0 0 30,891,689 143,050 26,975,836 1,119,473 1,218,582 1,079,841 3,026,978 1,082,188 0 2,644 (983,079) 0 (983,079) 0 0 0 (983,079) (0.09) (0.09)
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