Financial and Operating Results for the three Months Ended June 30, 2008
HOUSTON, TEXAS--(Marketwire - Aug. 12, 2008) - Caza Oil & Gas, Inc. ("Caza" or the "Company") (TSX:CAZ)(AIM:CAZA) is pleased to announce its financial and operating results for the three months ended June 30, 2008.
Second Quarter 2008 Highlights
Financial:
- Total revenue of US$1,067,365 (Q2 2007 - US$266,597).
- Net loss of US$536,701 (Q2 2007 - US$420,057).
- Capital expenditures totaled US$3,237,141 (Q2 2007 - US$1,277,200).
Operational:
- Sales volumes averaged 1,005 Mcfe/d, 148% higher than the volumes recorded in the comparative three-month period ended 2007.
- On a Mcf equivalent basis, natural gas accounted for 97% of second quarter 2008 volumes and NGLs 3%.
- Caza's realized price increased 61% to $11.66/Mcfe from $7.22/Mcfe in the comparative three-month period ended 2007.
Commenting on the results, Mike Ford, CEO of Caza, said, "In addition to the reported financial results for the 2nd quarter 2008, we are very pleased to have closed the Pounds Sterling 11.5 million private placing that has fully funded our drilling program for the remainder of 2008. Caza has had considerable drilling success so far in 2008 and we hope to continue that success and continue to increase production volumes, revenue and cash flow with the investment of these additional funds."
HIGHLIGHTS - UNAUDITED
(in United States dollars)
Three Months Ending June 30, 2008 2007 % change
Financial (US$)
Gas and Condensate revenue 1,067,365 266,597 300
Net Income (loss) (536,701) (420,057) 28
Per share - basic and diluted (0.01) (0.01)
Capital expenditures (net) 3,237,141 1,277,200 153
Operations (US$)
Sales volumes
Natural gas (Mcf/d) 979 390 151
Natural gas liquids (bbls/d) 4 3 33
Combined (Mcfe/d) 1,005 406 148
Operating netbacks ($/Mcfe)
Average selling prices 11.66 7.22 61
Production expenses 0.54 1.32 -59
Severance Taxes 0.79 0.58 36
Transportation expenses 0.12 -
Operating netback 10.21 5.32 92
Share Data
Weighted average outstanding
(including exchangeables) 97,723,874 73,000,000 34
Equity outstanding - end of period
Common 119,319,000 46,498,000 157
Warrants 20,500,000 22,400,000 -8
Stock options 6,338,333 3,965,000 60
About Caza:
Caza is engaged in the acquisition, exploration, development and production of hydrocarbons in the Texas Gulf Coast (on-shore), south Louisiana, southeast New Mexico and the Permian Basin of West Texas regions of the United States of America through its subsidiary, Caza Petroleum, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following interim Management's Discussion and Analysis ("MD&A") of the financial results for Caza Oil & Gas, Inc. ("Caza" or the "Company") should be read in conjunction with the unaudited consolidated interim financial statements as at and for the three and six month periods ended June 30, 2008, the annual information form, the audited consolidated financial statements and corresponding MD&A for the year ended December 31, 2007. Additional information relating to the Company can be found on SEDAR at www.sedar.com. All figures herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") unless otherwise stated. This MD&A is dated August 11, 2008.
Forward Looking Information
In addition to historical information, the MD&A contains forward-looking statements that are generally identifiable as any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events of performance (often, but not always, through the use of words or phrases such as "will likely result", "expected", "is anticipated", "believes", "estimated", "intends", "plans", "projection" and "outlook"), are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements.
These statements are based on certain factors and assumptions regarding the results of operations, the performance of projected activities and business opportunities. Specifically, we have used historical knowledge and current industry trends to project budgeted expenditures for 2008. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.
Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: risks associated with the Company's stage of development; competitive conditions; share price volatility; risks associated with crude oil and natural gas exploration and development; risks related to the inherent uncertainty of reserves and resources estimates; possible imperfections in title to properties; the volatility of crude oil and natural gas prices and markets; environmental regulation and associated risks; loss of key personnel; operating and insurance risks; the inability to add reserves; risks associated with industry conditions; the ability to obtain additional financing on acceptable terms if at all; non-operator activities; the inability of investors in certain jurisdictions to bring actions to enforce judgments; equipment unavailability; potential conflicts of interest; risks related to operations through subsidiaries; risks related to foreign operations; currency exchange rate risks and other factors, many of which are beyond the control of the Company. Accordingly, there is no representation by Caza that actual results achieved during the forecast period will be the same in whole or in part as that forecast. Further, Caza undertakes no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws.
Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein.
Non-GAAP Measures
The financial data presented herein has been prepared in accordance with GAAP. The Company has also used certain measures of financial reporting that are commonly used as benchmarks within the oil and natural gas production industry in the following MD&A discussion. The measures are widely accepted measures of performance and value within the industry, and are used by investors and analysts to compare and evaluate oil and natural gas exploration and producing entities. Most notably, these measures include operating netback and funds flow from (used in) operations. Operating netback is a benchmark used in the crude oil and natural gas industry to measure the contribution of oil and natural gas sales and is calculated by deducting royalties and operating expenses from revenues. Funds flow from (used in) operations is cash flow from operating activities before changes in non-cash working capital, and is used to analyze operations, performance and liquidity. These measures are not defined under GAAP and should not be considered in isolation or as an alternative to conventional GAAP measures. These measures and their underlying calculations are not necessarily comparable to a similarly titled measure of another entity. When these measures are used, they are defined as "non GAAP" and should be given careful consideration by the reader.
Note Regarding Boe and Mcfe
In this MD&A, Boes are derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil (6 Mcf:1 bbl) and Mcfes are derived by converting oil to gas in the ratio of one barrel of oil to six thousand cubic feet of gas (1 bbl:6 Mcf). Per barrel oil equivalent amounts ("boe") and one thousand cubic feet of gas equivalent ("Mcfe") amounts may be misleading, particularly if used in isolation. A boe conversion of 6 Mcf of natural gas to 1 bbl of oil, or a Mcfe conversion ratio of 1 bbl of oil to 6 Mcf of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
Currency
References to "dollars" and "$" are of U.S. dollars and references to "CDN$" are to Canadian dollars.
Operating Netback Summary
The following table reconciles the Company's operating netback which is considered to be a non-GAAP measure:
Three months ended Six months ended
June 30, June 30,
(on a Mcfe basis) 2008 2007 2008 2007
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Oil and natural gas revenue $ 11.66 $ 7.22 $ 10.08 $ 7.35
Production expense (0.54) (1.32) (0.72) (1.35)
Severance expense (0.79) (0.58) (0.69) (0.61)
Transportation expense (0.12) - (0.12) -
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Operating netback (non-GAAP) 10.21 5.32 8.55 5.39
FINANCIAL AND OPERATING RESULTS
Petroleum and Production Revenue
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
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Natural gas
Production (Mcf) 89,073 35,499 173,927 66,365
Revenue ($) 1,017,719 251,351 1,710,627 480,467
Price ($/Mcf) 11.43 7.08 9.84 7.24
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Natural gas liquids
Production (bbls) 408 236 723 438
Revenue ($/bbl) 49,646 15,247 86,022 26,693
Price ($/bbl) 121.78 64.61 118.97 60.94
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Combined
Production (Mcfe) 91,519 36,917 178,267 68,997
Revenue ($) 1,067,365 266,597 1,796,648 507,160
Price ($/Mcfe) 11.66 7.22 10.08 7.35
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Mcfe/d 1,005 406 985 381
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Boe/d 168 68 164 64
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Natural gas and condensate revenues increased 300% to $1,067,365 for the three-month period ended June 30, 2008 from $266,597 for the three-month period ended June 30, 2007 (the "comparative period") and 46% higher than the first quarter of 2008. Caza production volumes increased 148% to 91,519 Mcfe for the three-month period ended June 30, 2008 up from 36,917 Mcfe for the comparative period. This represents an average daily production rate increase of 148% for the three months ended June 30, 2008 of 1,005 Mcfe/d as compared to 406 Mcfe/d for the comparative period. The average natural gas price received by Caza increased 61% to $11.66 per Mcfe during the three-month period ended June 30, 2008 from $7.22 per Mcfe during the comparative period. The increase in revenues and production from the first half of 2007 are a result of the Matthys McMillan well coming on line in the third quarter of 2007 and the increase in the North American spot price of natural gas. Presently the Company has not hedged any of its production and does not have any commodity price management programs in place.
Production Expenses
Three Months ended Six Months ended
June 30, June 30,
2008 2007 2008 2007
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Severance tax ($) 72,619 21,731 123,783 42,510
Transportation ($) 11,891 - 22,183 -
Production ($) 49,567 49,041 128,998 71,047
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Severance, transportation
and production ($) 134,077 70,772 274,964 113,557
Severance, transportation
and production ($/Mcfe) 1.47 1.92 1.54 1.65
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Severance taxes and transportation expenses totaled $84,510 ($0.91/Mcfe) for the three-month period ended June 30, 2008, as compared to $21,731 ($0.58/Mcfe) in the comparative period. The realized average price of natural gas increased by 61% to $11.66 from $7.22 in the comparative period.
Severance tax is a tax imposed by states on natural resources such as crude oil, natural gas and condensate extracted from the ground. The tax is calculated by applying a rate to the dollar amount of production from the property or a set dollar amount applied to the volumes produced from the property. The increase in severance taxes and transportation expenses are a result of the Matthys McMillan well coming on line in the third quarter of 2007.
Production expenses for the three-month period ended June 30, 2008 were $49,567 compared to $49,041 for the comparative period. Caza's average lifting cost for the three-month period ended June 30, 2008 was $0.54 per Mcfe versus $1.32 per Mcfe for the comparative period. The decrease in per unit production expense was attributable to the drilling of additional wells in the latter half of 2007 and to date in 2008 along with increased production rates.
Depletion, Depreciation and Accretion
Depletion, depreciation, amortization and accretion expense for the first six months of 2008 increased to $355,741 ($3.88/Mcfe) from $63,760 ($1.73/Mcfe) in the comparative period.
Three Months ended Six Months ended
June 30, June 30,
2008 2007 2008 2007
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Depletion and
depreciation ($) 352,174 62,925 671,110 108,686
Accretion ($) 3,567 835 7,132 1,671
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Depletion, depletion and
accretion ($) 355,741 63,760 678,242 110,357
Depletion, depletion and
accretion ($/Mcfe) 3.88 1.72 3.80 1.60
The increased expense resulted from drilling costs associated with the drilling of additional wells in the latter half of 2007 and to date in 2008 along with increased production rates in the 2008 periods.
Costs of unproved properties of $11,759,027 were excluded from depletable costs in accordance with Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline 16. A proportionate amount of the carrying value will be transferred to the depletable pool as reserves are proven up through the execution of Caza's exploration program.
Accretion expense is the increase in the present value of the asset retirement obligation for the current period and the amount of this expense will increase commensurate with the asset retirement obligation as new wells are drilled or acquired through acquisitions.
General and Administrative Expenses
Three Months ended Six Months ended
June 30, June 30,
2008 2007 2008 2007
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General and
administrative ($) 1,452,935 774,693 2,716,880 1,259,799
General and
administrative
recovery ($) (73,945) (38,916) (117,064) (45,922)
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Net general and
administrative ($) 1,378,990 735,777 2,599,816 1,213,877
General and
administrative ($/Mcfe) 15.87 20.98 15.24 18.26
Net general and
administrative ($/Mcfe) 15.06 19.93 14.58 17.59
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On a Mcfe basis the net general and administrative expenses decreased 24% and 17% for the respective three and six month periods ended June 30, 2008. Stock-based compensation expense in the amount of $134,988 (93,701 in 2007) is included in general and administrative expenses for the three month period ended June 30, 2008 and $252,226 ($240,112 in 2007) for the six month period ended June 30, 2008. Increased salaries, wages and consulting fees along with increased professional service expenses were the primary factors responsible for the increase in total general and administrative expenses when compared to the respective comparative periods. During the six month period ended June 30, 2008, Caza capitalized general and administrative expenses relating to exploration and development activities of $603,946, of which $117,587 related to capitalized stock-based compensation. On a Mcfe basis the net general and administrative expenses decreased 24% and 17% for the respective three and six month periods ended June 30, 2008.
Net loss
Caza incurred a net loss of $536,701 for the three month period ended June 30, 2008 and a net loss of $1,172,386 for the six month period ended June 30, 2008. As compared to a net loss of $420,057 during the three month period ended June 30, 2007 and a net loss of $550,073 for the six month period ended June 30, 2007. The increase in net loss from the comparative period occurred as a result of increases in staff numbers and the expenses related to being a publicly listed company.
Investments
Interest income for the three-month period ended June 30, 2008 was $53,461 and $144,913 for the six month period ended June 30, 2008 down from $279,415 during the same period in 2007. Interest was earned on the proceeds from Caza's initial brokered private placement, which was principally completed in the fourth quarter of 2006, and from Caza's initial public offering, which was completed December 12, 2007. Caza invested the proceeds from these financings in short-term money market funds. The Company does not hold any asset backed paper.
Funds flow from (used in) operations (Non-GAAP)
The following is a reconciliation of funds flow from (used) in operations to net loss.
Three Months ended Six Months ended
June 30, June 30,
2008 2007 2008 2007
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Net loss (536,701) (420,057) (1,172,386) (550,073)
Non-cash items, net 209,851 156,271 505,991 245,709
Asset retirement obligations
settled - - (9,767) -
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Funds flow from (used) in
operations (326,850) (263,786) (676,162) (304,364)
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Funds loss per share - basic
and diluted (0.00) (0.00) (0.00) (0.00)
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Funds flow from (used) in operations is cash flow from operating activities before changes in non-cash working capital, and is used to analyze operations, performance and liquidity and is a non-GAAP measure.
Capital Expenditures
Three Months ended Six Months ended
June 30, June 30,
By Type ($) 2008 2007 2008 2007
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Drilling and completions 2,535,063 1,242,463 5,556,436 1,655,767
Seismic 16,314 - 166,314 61,100
Facilities and lease
equipment 434,314 554,034 1,375,045 596,163
Office furnishings and
equipment 60,124 77,760 100,156 372,634
Leasehold
geological/geophysical 40,688 1,197,291 178,443 2,405,451
Other costs (recovery) 150,638 (1,794,348) 13,914 359,663
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Total 3,237,141 1,277,200 7,390,308 5,450,778
In the first half of 2008, Caza drilled 5 gross natural gas wells (1.88 net) completing 2 (0.75 net) of the wells and began completion operations on the remaining 3 wells (1.13 net) to tie these wells into their respective gathering systems. Drilling activities during the first six months were concentrated in the Wilcox 116 prospect located in Texas and the Lynch property located in New Mexico as well as the Eland and Puku prospects located in Wharton County, Texas. Caza also participated as a non-operated 50% interest in the drilling of the Glass Ranch prospect located in Upton County Texas. Given Caza's current working capital surplus of approximately $20.1 million we anticipate participating in the drilling of 11 gross (3.92 net) wells and completing 3 of the wells drilled during the second quarter.
Outstanding Share Data
Caza is authorized to issue an unlimited number of common shares without par value, of which 119,319,000 common shares are currently issued and outstanding at August 11, 2008.
Holders of common shares are entitled to one vote per share on all matters voted on a poll by shareholders, and are entitled to receive dividends when and if declared by the board of directors out of funds legally available for the payment of dividends. Upon Caza's liquidation or winding up or other distribution of its assets among its shareholders for the purpose of winding up its affairs, holders of common shares are entitled to share pro rata in any assets available for distribution to shareholders after payment of all obligations of the Company.
