Success in Montney Gas and Light Oil coupled with strong financial results prompt Galleon to expand 2008 capital budget
CALGARY, May 13 /CNW/ - Galleon Energy Inc. ("Galleon" or the
"Corporation") announces record financial results in the first quarter of
2008.
HIGHLIGHTS
- Record daily production of 17,005 BOE, an increase of 43% from Q1
2007;
- Record quarterly funds from operations of $55.4 million ($0.83 per
basic share), an increase of 84% from Q1 2007;
- Record quarterly earnings of $10.4 million ($0.16 per basic share);
- As previously announced, Galleon drilled its first Montney horizontal
well completed with multistage fracturing at Dawson, Alberta which
flowed at a rate of 4 Mmcf/d with 160 Bbl/d of 32 degree API oil;
- The exploration and development capital program will be expanded post
breakup by approximately $30 million, the majority of which will be
directed towards the drilling of identified large resource plays and
natural gas facility expansion;
- Subsequent to first quarter 2008, on May 9, 2008, Galleon acquired
all of the outstanding shares of Adamant Energy Inc. and available
credit facilities were increased to $310 million.
CAPITAL PROGRAM
Galleon announces an increase in its 2008 capital program from
$200 million to $230 million as a result of encouraging drilling results and
strong cash flow. The 2008 budget is expected to be entirely funded by cash
flow. Post breakup, Galleon plans to employ continuously 5 to 8 drilling rigs.
Montney Gas
-----------
The Corporation plans to aggressively pursue Montney resource gas on no
less than 7 new projects. Galleon has in excess of 500 net sections of land in
prime Montney fairways.
At Dawson, Alberta, Galleon drilled a Montney horizontal well completed
with multi-stage fracturing in Q1 2008. This well tested at a rate of 4 Mmcf/d
with 160 Bbl/d of 32 degree API oil. The well is expected to be brought on
production after break up at an initial controlled rate of 1.5 Mmcf/d. In the
second and third quarters of 2008, Galleon intends to aggressively follow up
this success by employing 3 rigs on this program. Based on early success, the
drilling program will then continue at this accelerated pace.
Over 100 horizontal wells have been laid out in the core of the pool
using 2 wells per section spacing. An additional 200 horizontal wells may be
drilled within the mapped boundaries of the pool using 2 wells per section. An
application is being prepared to further down space the entire field to
4 wells per section, which will provide more effective drainage of the pool.
Additionally, exploration drilling along the trend of the Dawson pool is
planned in 2008. At least 3 exploration wells will be drilled based on
3D seismic which have the potential to expand both the length and width of the
fairway.
In the second and third quarters of 2008, horizontal wells with
multi-stage fracture stimulations are planned on 4 emerging Montney resource
plays. In all cases, the pools have existing producing vertical wells. These
plays have significant areal extent and are in the deeper part of the basin
relative to Dawson. Follow up horizontal trajectories are being planned and
will be drilled if results meet expectations.
Up to 5 Montney recompletions are planned on existing wellbores. These
recompletions are largely on lands recently acquired. Successful recompletions
will lead to additional horizontal drilling.
Exploration drilling on new Montney trends will also take place in Q2/Q3
2008. At least 3 wells are planned on independent fairways. Each fairway has
existing key wells that identify Montney pay on wireline logs.
Light Oil
---------
Given current light oil prices and the associated high net backs
received, Galleon will continue to drill for light oil in 2008. Twenty light
oil wells were drilled in Q1 2008 with 17 being cased for production. The high
success rate to date is largely because all wells were identified using
3D seismic. This practice will continue throughout 2008.
At Eaglesham, 3 Wabamun oil wells are planned in Q2/Q3 2008 in the main
fairway. The 100% owned Galleon oil battery has been completed and is fully
operational. This will provide further efficiencies to already low operating
costs. All wells will be single well pools and are anticipated to be eligible
for the $1 million Alberta crown royalty holiday on deep exploration oil
wells. Two wildcat wells are also planned in Q2/Q3 2008.
At Kimiwan/Culp/McLeans Creek, up to 12 light oil wells are planned
targeting Beaverhill Lake and Granite Wash. Most of these wells are
anticipated to be eligible for the $1 million Alberta crown royalty holiday on
deep exploration oil.
PRODUCTION OUTLOOK
First quarter 2008 production averaged 17,005 Boe/d, an increase of 43%
from Q1 2007 and an increase of 16% from Q4 2007. To date in the second
quarter of 2008, Galleon has seen a long spring break up which has delayed the
tie-in of wells drilled in Q1 2008. Plant interruptions in British Columbia
will also have an impact on Q2 2008 production (approximately 400 Boe/d). At
Clear Hills, Alberta, approximately 400 Boe/d has been shut in since February
2008 due to a third party facility fire. This production is expected to come
back on in the second half of Q2 2008. Second quarter 2008 production is
forecasted to range between 18,000 to 19,000 Boe/d based on field estimates.
Current production capacity, including production to be tied in, exceeds
20,000 Boe/d. This represents a year over year increase of between 35% and 42%
from Q2 2007. Exit 2008 production is targeted to exceed 23,000 Boe/d.
Management's Discussion and Analysis
This Management's Discussion & Analysis ("MD&A") is intended to assist in
the understanding of the trends and significant changes in the financial
condition and results of operations of Galleon Energy Inc. ("Galleon" or the
"Corporation") for the three month period ended March 31, 2008 with
comparisons to the three months ended March 31, 2007 and as at December 31,
2007. The MD&A has been prepared by management in accordance with Canadian
generally accepted accounting principles ("GAAP") and should be read in
conjunction with the unaudited interim financial statements as at and for the
three month periods ended March 31, 2008 and 2007 and the audited financial
statements and MD&A for the year ended December 31, 2007.
Petroleum and natural gas reserves and volumes are converted to a common
unit of measure on a basis of six thousand cubic feet (Mcf) of gas to one
barrel (Bbl) of oil. BOEs may be misleading, particularly if used in
isolation. The forgoing conversion ratio is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
Amounts are shown in Canadian dollars unless otherwise stated. All
production volumes disclosed herein are sales volumes.
This MD&A is based on information available as of, and is dated, May 13,
2008.
Non-GAAP Measurements
The MD&A contains terms commonly used in the oil and gas industry, such
as funds from operations, funds from operations per share, and operating
netback. These terms are not defined by GAAP and should not be considered an
alternative to, or more meaningful than, cash provided by operating activities
or net earnings as determined in accordance with Canadian GAAP as an indicator
of Galleon's performance. Management believes that in addition to net
earnings, funds from operations is a useful financial measurement which
assists in demonstrating the Corporation's ability to fund capital
expenditures necessary for future growth or to repay debt. Galleon's
determination of funds from operations may not be comparable to that reported
by other companies. 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. The Corporation
calculates funds from operations per share by dividing funds from operations
by the weighted average number of Class A shares outstanding.
Galleon uses the term net debt in the MD&A and presents a table showing
how it has been determined. This measure does not have any standardized
meaning prescribed by Canadian GAAP and therefore may not be comparable to
similar measures presented by other companies.
Forward-Looking Statements
Statements that are not historical facts may be considered
forward-looking statements including management's assessment of future plans
and operations, growth expectations within the Corporation, expected
production and production increases, expected effect of production increases
on average operating costs in certain areas, expected reduction in operating
costs in certain areas, expectation that the Corporation will not be taxable
in 2008, drilling plans and the timing thereof, capital expenditures, the
timing thereof and the method of funding thereof. These forward-looking
statements sometimes include words to the effect that management believes or
expects a stated condition or result. All estimates and statements that
describe the Corporation's objectives, goals or future plans are
forward-looking statements. Since forward-looking statements address future
events and conditions, by their very nature they involve inherent risks and
uncertainties including, without limitation, risks associated with oil and gas
exploration, development, exploitation, production, marketing and
transportation, loss of markets, volatility of commodity prices, currency
fluctuations, imprecision of reserve estimates, environmental risks,
competition from other producers, inability to retain drilling rigs and other
services, incorrect assessment of the value of acquisitions, failure to
realize the anticipated benefits of acquisitions, delays resulting from or
inability to obtain required regulatory approvals and ability to access
sufficient capital from internal and external sources. As a consequence,
Galleon's actual results may differ materially from those expressed in, or
implied by, the forward-looking statements.
Forward-looking statements or information are based on a number of
factors and assumptions which have been used to develop such statements and
information but which may prove to be incorrect. Although the Corporation
believes that the expectations reflected in such forward-looking statements or
information are reasonable, undue reliance should not be placed on
forward-looking statements because the Corporation can give no assurance that
such expectations will prove to be correct. In addition to other factors and
assumptions which may be identified in this document, assumptions have been
made regarding, among other things: the impact of increasing competition; the
general stability of the economic and political environment in which the
Corporation operates; the timely receipt of any required regulatory approvals;
the ability of the Corporation to obtain qualified staff, equipment and
services in a timely and cost efficient manner; drilling results; the ability
of the operator of the projects which the Corporation has an interest in to
operate the field in a safe, efficient and effective manor; the ability of the
Corporation to obtain financing on acceptable terms; field production rates
and decline rates; the ability to replace and expand oil and natural gas
reserves through acquisition, development of exploration; the timing and costs
of pipeline, storage and facility construction and expansion and the ability
of the Corporation to secure adequate product transportation; future oil and
natural gas prices; currency, exchange and interest rates; the regulatory
framework regarding royalties, taxes and environmental matters in the
jurisdictions in which the Corporation operates; and the ability of the
Corporation to successfully market its oil and natural gas products.
Readers are cautioned that the foregoing list of all factors and
assumptions is not exhaustive. Additional information on these and other
factors that could affect Galleon's operations and financial results are
included elsewhere herein and in reports on file with Canadian securities
regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com), or at Galleon's website (www.galleonenergy.com). Furthermore,
the forward-looking statements contained herein are made as at the date hereof
and Galleon does not undertake any obligation to update publicly or to revise
any of the included forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by
applicable securities laws.
Results of Operations
Comparative financial results for the quarter are as follows:
Three months ended
March 31 2008 2007
-------------------------------------------------------------------------
1,547,476 BOE 1,069,915 BOE
($000s) $/BOE $/BOE
-------------------------------------------------------------------------
Revenues 101,516 65.60 52,974 49.51
Other income 123 0.08 - -
Royalties (20,668) (13.36) (11,016) (10.30)
GCA(1) 2,423 1.57 2,634 2.46
Transportation
costs (1,615) (1.04) (1,587) (1.47)
Operating costs (17,460) (11.28) (9,478) (8.86)
-------------------------------------------------------------------------
Net 64,319 41.57 33,527 31.34
G&A (2,371) (1.53) (1,264) (1.18)
Interest costs (2,803) (1.81) (2,246) (2.10)
Capital and other
taxes (339) (0.22) (220) (0.21)
Realized gain
(loss) on
financial
derivatives (3,361) (2.18) 373 0.35
-------------------------------------------------------------------------
Funds from
operations(2) 55,445 35.83 30,170 28.20
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) GCA means Gas Cost Allowance
(2) See "Non-GAAP Measurements"
Petroleum and Natural Gas Revenues
Three months ended
March 31 2008 2007
-------------------------------------------------------------------------
($000s) % %
Light oil 46,858 46 18,309 35
Heavy oil 13,887 14 6,919 13
NGLs 2,452 2 1,051 2
Natural gas 38,181 38 26,516 50
Royalty income 138 - 179 -
-------------------------------------------------------------------------
Total 101,516 100 52,974 100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenues for the three months ended March 31, 2008 increased by 92% to
$101.5 million from $53.0 million for the same period of the prior year due to
a 43% increase in average production volumes, a 74% increase in heavy oil
prices, a 50% increase in light oil prices, and a shift in the product mix
towards oil. On a volume basis, the oil and liquids to natural gas production
ratio for the first quarter of 2008 was 48/52 compared to a ratio of 46/54 in
the prior year.
In the first quarter of 2008, on a revenue basis, oil and liquids
generated 62% of revenues compared to 50% in the same period of the prior
year.
Production
Three months ended
March 31 2008 2007
-------------------------------------------------------------------------
BOE/d % BOE/d %
Light oil (Bbls/d) 4,871 29 3,127 26
Heavy oil (Bbls/d) 2,919 17 2,081 18
NGLs (Bbls/d) 441 2 206 2
Natural gas (Mcf/d) 52,644 52 38,845 54
-------------------------------------------------------------------------
BOE/d (6:1) 17,005 100 11,888 100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average production volumes of 17,005 BOE/d for the first quarter 2008
were 43% greater than the average of 11,888 BOE/d in first quarter 2007. By
product, production volumes increased as follows: light oil volumes by 56%,
heavy oil volumes by 40%, natural gas volumes by 36% and natural gas liquids
volumes by 114%.
Light oil production increased as a result of drilling success in the
Puskwa, Eaglesham and newly discovered areas of McLeans Creek and Kimiwan.
Natural gas production increased as a result of Dawson Montney gas, Eaglesham
and Puskwa drilling success. Heavy oil production increased as a result of the
addition of the Alexis area through the acquisition of ExAlta.
Commodity Pricing and Marketing
Petroleum products are sold to major Canadian marketers at spot reference
prices based on US WTI for crude oil and AECO for natural gas. As a means of
managing the risk of commodity price volatility, Galleon entered into one term
natural gas contract and two crude oil financial contracts for 2008. The
natural gas contract for 10,000 GJ/day was put in place on January 8, 2008 and
has a term from February 1 to December 31, 2008 with pricing subject to a
costless collar of $6.00/GJ and $8.00/GJ Canadian. For the two months ended
March 31, 2008, the natural gas contract had a realized loss of $413,802.
For crude oil, Galleon entered into one costless collar contract on
2,000 Bbl/day, fixing a floor price of WTI CDN $70.00/Bbl and a ceiling of
WTI CDN $80.75/Bbl for the period January 1, 2008 to December 31, 2008. A
second crude oil costless collar contract was entered into for 1,000 Bbl/day,
fixing a floor price of $75.00 WTI USD and a ceiling price of $100.00 WTI USD
for the period January 1, 2008 to December 31, 2008. For the three months
ended March 31, 2008, the two crude oil contracts resulted in realized losses
of $3,359,608. An unrealized loss of $14,001,209 was recorded based on the
mark to market value at March 31, 2008 of these financial contracts.
Prices (net of transportation)
Three months ended March 31 2008 2007
-------------------------------------------------------------------------
Light oil ($/Bbl) 94.79 63.24
Heavy oil ($/Bbl) 63.52 36.55
Total oil including financial derivative
contract ($/Bbl) 80.50 -
Total oil without financial derivative
contract ($/Bbl) 85.20 52.57
Natural gas ($/Mcf) 8.08 7.36
NGLs ($/Bbl) 59.59 56.64
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Light oil prices increased by 50% to $94.79/Bbl, excluding the loss
incurred from the crude oil costless collars. Average heavy oil prices of
$63.52/Bbl increased by 74% from the same period of the prior year due to an
increase in demand at refineries which resulted in an improvement in heavy oil
differentials. Average natural gas prices of $8.08/Mcf increased by 10% from
the first quarter of 2007. The price calculated for the first quarter of 2008
includes the impact of the natural gas contract.
Performance by Property
Three months ended
March 31 2008 2007
----------------------------------------- ----------------------- 2008
Oper- Oper- Funds
ating ating from
net- net- oper-
backs/ backs/ ations
Production BOE(1) Production BOE(1) (2)
-------------------------------------------------------------------------
BOE/d % $ BOE/d % $ %
Puskwa 2,702 16 56.86 1,525 13 49.91 23
Dawson Montney
gas 3,421 20 34.53 2,825 24 31.80 17
Eaglesham 3,097 18 45.09 1,554 13 32.57 20
Dawson 2,473 15 33.33 3,038 26 28.48 12
Edam and other
heavy oil 1,941 11 23.66 2,082 17 10.23 7
Calais 907 5 30.13 477 4 20.80 4
McLean Creek 649 4 87.31 - - - 8
Alexis 978 6 32.38 - - - 5
Other 837 5 31.25 387 3 23.07 4
-------------------------------------------------------------------------
17,005 100 40.08 11,888 100 28.88 100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Operating netbacks/BOE exclude GCA and are calculated by subtracting
royalties and operating costs from revenues.
(2) See "Non-GAAP Measurements".
At Puskwa, production increased by 77% over the same period of the prior
year, and the operating netback of $56.86/BOE improved by 14%. The strong
operating netbacks during the quarter were driven by high light oil prices,
net of transportation, of $96.94/Bbl. Puskwa contributed 23% of funds from
operations from 16% of production. Average production volumes at Puskwa during
first quarter 2008 were comprised of 83% oil and 17% associated gas.
During first quarter 2008, Galleon successfully drilled three light oil
wells at Puskwa with an additional well being abandoned due to drilling
problems. A well located at 3-32-72-25W5 was drilled with success at the north
east end of the pool and thereby extended the oil fairway to over nine miles
in length. Drilling will continue at a managed rate in Puskwa throughout 2008.
Two enhanced recovery schemes have been approved and implemented. Down spacing
applications to allow up to 16 wells per section will be submitted. In 2008,
up to four additional wells are planned for oil targets as well as for
injection purposes.
Production of Montney gas at Dawson increased by 21% during first quarter
2008 compared to the same period of the prior year. The operating netback of
$34.53/BOE has improved by 9% from first quarter 2007. Operating costs remain
low at $4.57/BOE, but have increased slightly from $4.27/BOE in the first
quarter 2007 mainly due to increased trucking costs as a result of increased
fuel costs. The area contributes 17% to total funds from operating activities
from 20% of production. Average production volumes of 3,421 BOE/d during first
quarter 2008 were comprised of 89% natural gas and 11% oil and liquids.
In the first quarter of 2008, Galleon drilled its first Montney
horizontal well with multistage fracturing. The well was tested at rates of up
to 4 Mmcf/d plus approximately 160 Bbl/d of 32 degree API oil. The well is
expected to be brought on production at a controlled rate of 1.5 Mmcf/d. This
well has had the best initial performance of any of the 83 Montney wells
drilled by Galleon in this area to date. The economics of the horizontal
Montney wells are superior to the vertical wells both on a rate of return and
reserve optimization basis. During the first quarter of 2008, three key wells
were drilled into new Montney gas fairways located in the Peace River Arch
area. In 2008 Galleon plans to pursue exploitation and exploration drilling on
no less than 7 new Montney resource projects. Up to 5 horizontal wells with
multistage fracturing and 6 vertical wells are planned on these new projects
in 2008. The combination of pool optimization at Dawson and growth on new
projects is expected to establish Galleon as a significant Montney player.
Average production at Eaglesham in the first quarter 2008 averaged
3,097 BOE/day comprised of 60% natural gas and 40% oil and liquids. Eaglesham
contributed 20% of the first quarter 2008 funds from operations from 18% of
production. Average production of 223 BOE/d from the ExAlta properties at
Eaglesham was included in the first quarter of 2008.
At Eaglesham, a new 10,000 BOE/day oil battery with significant water
disposal capabilities and expansion of the existing gas plant were completed
in February 2008. Control of the facilities in the area is expected to enable
Galleon to control operating costs and significantly reduce costs for trucking
water, salt water disposal and emulsion processing. The battery and plant
expansion was required to accommodate existing and significant production
growth expected in 2008. Galleon has drilled 5 successful Wabamun light oil
wells in the first quarter of 2008. In addition, one well was cased for
Wabamun gas. Two wells targeting the Wabamun were abandoned. An additional 8
exploitation Wabamun wells are planned for 2008 and up to 6 Wabamun
exploration wells are expected to be drilled along trend. These locations were
identified on two 3D seismic programs acquired in the first quarter of 2008.
At Dawson, production declines resulted in a decrease of 19% in volumes
compared to the prior year. Lower volumes resulted in higher operating costs
per barrel of oil equivalent. Although the area was previously Galleon's main
contributor to funds from operating activities, it represented only 12% of
funds from operating activities generated from 15% of the production volumes
in first quarter 2008.
In Q1 2008, the heavy oil wells located at Edam, Saskatchewan generated
7% of funds from operations from 11% of total production. Operating netbacks
of $23.66/BOE increased by 131% due to the increase in heavy oil prices in the
first quarter 2008. Heavy oil prices increased as a result of an increase in
demand at refineries which resulted in an improvement in heavy oil
differentials
Royalties
Three months ended March 31 2008 2007
-------------------------------------------------------------------------
($000s) except as indicated
Crown 18,563 10,091
Freehold 454 413
GORR and other 1,651 512
-------------------------------------------------------------------------
Subtotal 20,668 11,016
GCA (2,423) (2,634)
-------------------------------------------------------------------------
Net royalties 18,245 8,382
-------------------------------------------------------------------------
-------------------------------------------------------------------------
% of revenue 20.4 20.8
% of revenue net of and GCA 18.0 15.8
Gross royalties were 20.4% of revenues for the first quarter of 2008
compared to 20.8% for the same period in 2007. By product, gross royalties
were 15.4% for light oil, 24.7% for natural gas, 22.2% for heavy oil, and
28.1% for liquids. For the first quarter of 2007, gross royalties were 14.7%
for light oil, 25.1% for natural gas, 20.2% for heavy oil, and 25.6% for
liquids. Net royalties of 18.0% increased from 15.8% in the prior year as a
result of lower GCA credits as a percentage of total royalties.
Operating Costs
Three months ended March 31 2008
-------------------------------------------------------------------------
Operating Operating
Production costs costs
% % $/BOE
Puskwa 16 13 8.98
Dawson Montney gas 20 8 4.57
Eaglesham 18 11 8.22
Dawson 15 26 19.78
Edam and other heavy oil 11 24 22.99
Calais 5 4 7.49
McLeans Creek 4 6 9.53
Alexis 6 3 9.09
Other 5 5 9.73
-------------------------------------------------------------------------
100 100 11.28
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended March 31 2007
-------------------------------------------------------------------------
Operating Operating
Production costs costs
% % $/BOE
-------------------------------------------------------------------------
Puskwa 13 5 3.47
Dawson Montney gas 24 11 4.27
Eaglesham 13 8 5.58
Dawson 26 30 10.28
Edam and other heavy oil 17 37 18.85
Calais 4 4 7.27
Other 3 5 13.84
-------------------------------------------------------------------------
100 100 8.86
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating costs were $17.5 million or $11.28/BOE for the first quarter of
2008 compared to $9.5 million or $8.86/BOE for the same period of the prior
year. Galleon's operating costs per barrel of oil equivalent excluding heavy
oil was $9.61/BOE for the first quarter of 2008.
Operating costs for Puskwa increased to $8.98/BOE in the first quarter
2008 compared to $3.47/BOE in 2007, mainly due to the waterflood project and a
temporary pipeline failure. In the first quarter of 2008, a water pipeline
failure resulted in increased water trucking costs of $2.03/BOE for injection
purposes. The waterflood project has resulted in water and emulsion trucking
cost increases of $1.29/BOE and an increase in pump rental costs of $1.04/BOE
for water injection. Other cost increases at Puskwa included minor work over
and well service costs of $0.53/BOE due to a greater percentage of pumping oil
wells in 2008 compared to flowing wells in 2007. For the remainder of 2008,
operating costs are expected to decrease due to the pipeline being repaired
and reduced trucked volumes and costs for water and emulsion.
Eaglesham operating costs for the first quarter 2008 were $8.22/BOE
compared to $5.58/BOE in 2007, mainly due equipment rentals cost of $0.62/BOE
for single well batteries and fuel costs for the battery start up of
$0.51/BOE. In addition, operating costs for the first quarter 2008 also
included water trucking, salt water disposal and emulsion processing costs of
$0.29/BOE which will be eliminated with the February 14, 2008 start up of the
Eaglesham oil battery. Operating costs at Eaglesham during first quarter 2008
increased by $1.07/BOE due to the inclusion of the ExAlta properties from
January 16, 2008.
General and Administration Expenses
Three months ended
March 31 2008 2007
-------------------------------------------------------------------------
($000s)
$/BOE $/BOE
Gross 3,884 2.51 2,532 2.36
Capitalized overhead (1,209) (0.78) (1,017) (0.95)
Overhead recoveries (304) (0.20) (251) (0.23)
-------------------------------------------------------------------------
2,371 1.53 1,264 1.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net general and administrative (G&A) expenses of $1.53/BOE for the first
quarter of 2008 increased by 30% compared to the same period of the previous
year. While gross G&A expenses have increased by 53% with the growth of the
Corporation, gross G&A expenses per barrel of oil equivalent have increased by
6%.
For the three months ended March 31, 2008 G&A expenses by category were:
salary and employee - 53%, office - 18%, consulting - 7%, computer - 7%,
shareholder costs - 4%, audit, engineering and legal - 7%, and corporate - 4%.
Interest
Interest expense of $2.8 million for the three months ended March 31,
2008 was higher than $2.2 million in the same period of the prior year due to
increased average debt levels and higher interest rates. At March 31, 2008 an
amount of $229.9 million was drawn against the Corporation's credit facility
compared to $189.4 million in the same period prior year.
Stock Based Compensation
Stock based compensation was a non-cash expense of $2.8 million for the
first quarter of 2008 compared to $1.9 million in the same quarter of the
prior year. The increase was due to a greater number of options outstanding.
During the first quarter of 2008, 965,000 stock options were granted to
employees at an average exercise price of $13.80 having fair values of between
$3.79 and $4.21 per option.
At March 31, 2008, 6,796,417 stock options were outstanding at an average
exercise price of $12.64.
Depletion, Depreciation and Accretion
Depletion and depreciation ("D&D") charges were $33.6 million or
$21.73/BOE for the three months ended March 31, 2008 compared to $22.0 million
or $20.48/BOE for the same period of the prior year. The D&D rate increase was
due to the ExAlta acquisition and increased finding costs from the drilling
program. Reserve additions for the first quarter of 2008 were estimated
internally.
Capital expenditures of $103.5 million ($78.3 million - March 31, 2007)
related to undeveloped land and seismic have been excluded from the depletion
and depreciation calculation and $114.9 million ($84.4 million - March 31,
2007) of future development costs have been added.
Accretion expense on the Corporation's asset retirement obligation was
$568,000 for the first quarter of 2008 compared to $317,000 in the same
quarter of the prior year. Accretion expense increased due to a greater asset
retirement obligation which is driven by the number of wells and facilities in
which Galleon has an interest. For the quarter, $3.5 million of asset
retirement liabilities were added due to the acquisition of ExAlta and
$0.9 million added due to wells drilled in the first quarter of 2008.
Capital and Future Taxes
The current tax provision of $339,000 for the first quarter was comprised
of Saskatchewan capital and resource taxes, as was the provision for the first
quarter of 2007. The provision is calculated based on revenues earned in
Saskatchewan. It is not expected that Galleon will pay any income taxes in
2008.
The provision for future income taxes was $3.1 million for the first
quarter of 2008 compared to $2.5 million for the first quarter of the prior
year. The increase in future taxes was a result of higher net earnings before
taxes during the period.
Capital Expenditures
($000s)
-------------------------------------------------------------------------
Property & equipment balance at December 31, 2007 739,643
Additions to property and equipment 71,326
Acquisition of property and equipment 10
Acquisition of ExAlta 92,233
Well abandonments 897
Asset retirement obligation acquired 3,515
Asset retirement obligation additions 871
Depletion and depreciation (33,619)
-------------------------------------------------------------------------
Property & equipment balance at March 31, 2008 874,876
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the first quarter of 2008, $92.2 million was recorded in property
and equipment additions and asset retirement obligations increased by
$3.5 million due to the acquisition of ExAlta.
Three months ended
March 31 2008 2007
-------------------------------------------------------------------------
($000s) % %
Land 2,039 3 3,633 6
Geological and
geophysical 5,353 8 2,930 5
Drilling and
completion 44,393 62 40,553 66
Plant and facilities 19,408 27 14,048 23
Other assets 133 - 45 -
-------------------------------------------------------------------------
Exploration and
Development
Expenditures 71,326 100 61,209 100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exploration and development expenditures during the first quarter of 2008
were $71.3 million. Drilling and completions expenditures comprised 62% of
exploration and development activity. Galleon drilled 32 gross wells resulting
in 10 (9.2 net) natural gas wells and 17 (15.5 net) light oil wells for a
success rate of 84% for the quarter.
Facilities expenditures comprised 27% of activity, and included the
construction of pipelines and the tie-in of wells. Land and seismic
expenditures were incurred to expand Galleon's key areas and initiate
exploration activity in new areas. Management has established a capital budget
of between $200 to $210 million for 2008 which is expected to be funded from
funds from operations and available bank credit facilities.
Liquidity and Capital Resources
Three months ended March 31 2008 2007
-------------------------------------------------------------------------
($000s)
Bank debt 229,865 189,414
Capital leases - non current 3,091 -
Working capital deficiency 27,602 21,096
-------------------------------------------------------------------------
Total net debt 260,558 210,510
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funding of Capital Program
Three months ended March 31 2008 2007
-------------------------------------------------------------------------
($000s)
Issuance of shares, net of costs 1,746 796
Funds from operations 55,445 30,170
Change in bank debt 20,205 66,418
Change in capital leases (484) -
Change in working capital and other (3,680) (7,469)
-------------------------------------------------------------------------
73,232 89,915
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the quarter option exercises of $1.8 million, funds from
operations of $55.4 million, and an additional $20.2 million in bank debt and
working capital were used to fund $73.2 million of acquisition and exploration
and development expenditures.
At March 31, 2008, the Corporation has extendible revolving term credit
facilities of $265 million in place with a bank syndicate. The facilities bear
interest at rates ranging from the bank's prime rate to prime plus
0.75% per annum on $250 million and at rates ranging from the bank's prime
rate plus 0.95% to prime plus 1.75% on $15 million based on the Corporation's
debt to cash flow ratio. The Corporation may also borrow at the prevailing
Banker's Acceptance rate. Collateral for the facilities consists of a demand
debenture for $500 million collateralized by a first floating charge over all
of the property and equipment of the Corporation. At March 31, 2008, an amount
of $229.9 million was drawn against the credit facilities (March 31, 2007 -
$189.4 million). On May 9, 2008, the available credit facilities were
increased to $310 million primarily due to the closing of the acquisition of
Adamant Energy Inc.
Commitments
Drilling Rig:
The Corporation has entered into a Master Daywork Contract whereby it is
entitled to the use of a drilling rig for a two year period which commenced
November 15, 2007. Future minimum payments under this contract are as follows:
Amount
Year ($000s)
-------------------------------------------------------------------------
2008 2,402
2009 4,170
Equipment:
The Corporation has made installment payments of $1,330,220 related to
equipment which will be delivered in the second quarter of 2008. The
installment payments have been recorded on the balance sheet as prepaid. There
are no additional future commitments for this equipment.
Minimum Lease Payments:
At March 31, 2008 the Corporation has committed to future minimum
payments under operating leases that cover office space as follows:
Amount
Year ($000)
-------------------------------------------------------------------------
2008 2,123
2009 2,619
2010 1,768
The above commitment includes an estimate of the Corporation's share of
operating expenses, utilities and taxes for the duration of the office lease.
The Corporation has entered into a series of equipment lease financing
arrangements. Under these arrangements, the Corporation is committed to annual
minimum lease payments as follows:
$
2008 1,846
2009 2,274
2010 1,605
-------------------------------------------------------------------------
Total minimum lease payments 5,725
Less interest included in payments (432)
-------------------------------------------------------------------------
Principal portion of minimum lease payments 5,293
Less current portion (2,202)
-------------------------------------------------------------------------
Capital lease obligation at March 31, 2008 3,091
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Flow-through Shares:
In connection with the Corporation's flow-through share offering in 2007,
Galleon is obligated to spend $60.0 million on qualifying exploration expenses
prior to December 31, 2008. As at March 31, 2008, approximately $6.6 million
of the required qualifying expenditures remain to be incurred.
Financial Instruments
As a means of managing the risk of commodity price volatility Galleon has
entered into two financial contracts with a Canadian chartered bank and one
term natural gas contract. One crude oil costless collar contract is in place
setting a floor price of CDN WTI $70.00/bbl and a ceiling of CDN WTI
$80.75/bbl on 2,000 bbl per day for the period January 1, 2008 to
December 31, 2008. A second crude oil costless collar contract for 1,000
bbl/day is in place setting a floor price of USD WTI $75.00/bbl and a ceiling
of USD WTI $100.00/bbl for the period of January 1, 2008 to December 31, 2008.
The contracts will protect base line revenues if the WTI crude oil benchmark
falls below floor price. The contracts will be settled monthly based on the
average USD and CDN WTI benchmark price. Galleon will receive payments on the
contracts if the benchmark USD and CDN WTI price falls below the set floor
price and will be required to make payments if the price rises above the set
ceiling price. Galleon has recognized this financial instrument on its balance
sheet at fair value, and is accounting for the instrument using mark to market
accounting. As at March 31, 2008 Galleon had realized losses of $3.4 million
and an unrealized loss of $14.0 million based on a mark to market value
related to these derivative instruments.
The natural gas contract was put in place in January 2008 for
10,000 GJ/day for the period of February 1, 2008 to December 31, 2008 with
pricing subject to a costless collar of $6.00/GJ and $8.00/GJ Canadian. This
contract was a costless collar, therefore no premium was paid by Galleon upon
entering into the contract. As at March 31, 2008 Galleon has a realized loss
of $413,802 related to this physical derivative contract. As this is a
physical delivery contract, Galleon has not recognized the fair value of the
contract in the financial statements.
Business Risks
Galleon is engaged in the exploration, development and production of
crude oil and natural gas. The oil and gas business is inherently risky and
there is no assurance that hydrocarbon reserves will be discovered and
economically produced. Operational risks include competition, reservoir
performance uncertainties, environmental factors, and regulatory, environment
and safety concerns. Financial risks associated with the petroleum industry
include fluctuations in commodity prices, interest rates, currency exchange
rates and the cost of goods and services.
Galleon employs highly qualified people, uses sound operating and
business practices, and evaluates all potential and existing wells using the
latest applicable technology. Galleon complies with government regulations and
has in place an up-to-date emergency response test. Environment and safety
policies and standards are adhered to. Asset retirement obligations are
recognized upon acquisition, construction, development and/or normal use of
the assets. Galleon maintains property and liability insurance coverage. The
coverage provides a reasonable amount of protection from risk of loss;
however, not all risks are foreseeable or insurable.
Financial risks include fluctuations in commodity prices, interest rates
and the Canadian/US dollar exchange rate. The Corporation currently has two
financial contracts with a Canadian chartered bank and one term natural gas
contract (see "Financial Instruments" for details). The Corporation also
manages these risks by maintaining a healthy balance sheet with prudent levels
of debt measured by debt to funds from operations and debt coverage ratios.
This allows for strong financial capacity to maintain exploration and
development activities in any downturn in commodity prices. An additional risk
is credit risk for failure of performance by counter-parties. This risk is
controlled by an evaluation of the credit risk before contract initiation and
ensuring product sales and delivery contracts are made with well-known and
financially strong crude oil and natural gas marketers.
All phases of the oil and natural gas business present environmental
risks and hazards and are subject to environmental regulation pursuant to a
variety of federal, provincial and local laws and regulations. Compliance with
such legislation can require significant expenditures and a breach may result
in the imposition of fines and penalties, some of which may be material.
Environmental legislation is evolving in a manner expected to result in
stricter standards and enforcement, larger fines and liability and potentially
increased capital expenditures and operating costs. In 2002, the Government of
Canada ratified the Kyoto Protocol (the "Protocol"), which calls for Canada to
reduce its greenhouse gas emissions to specified levels. There has been much
public debate with respect to Canada's ability to meet these targets and the
Government's strategy or alternative strategies with respect to climate change
and 1the control of greenhouse gases. Implementation of strategies for
reducing greenhouse gases whether to meet the limits required by the Protocol
or as otherwise determined could have a material impact on the nature of oil
and natural gas operations, including those of the Company. Given the evolving
nature of the debate related to climate change and the control of greenhouse
gases and resulting requirements, it is not possible to predict either the
nature of those requirements or the impact on the Company and its operations
and financial condition.
Changes in Accounting Policies
As of January 1, 2008, Galleon adopted several new CICA standards,
section 1400 "General Standards of Financial Statement Presentation", section
1535 "Capital Disclosures", section 3031 "Inventories", section 3862
"Financial Instruments - Disclosures" and Section 3863 "Financial Instruments
- Presentation,".
CICA 1400, General Standards of Financial Statement Presentation, was
amended to include requirements to assess and disclose an entity's ability to
continue as a going concern. The new requirements are effective for interim
and annual financial statements relating to fiscal years beginning on or after
January 1, 2008. The adoption of this standard did not have an impact on the
Corporation's financial statements.
Section 1535 establishes standards for disclosing information regarding
the capital of the entity and how it is managed. The section specifies the
disclosure of i) objectives, policies, and processes for managing capital by
the entity; ii) quantitative data about what the entity regards as capital;
iii) whether the entity has complied with any capital requirements; and iv) if
it has not complied, the consequences of such non-compliance.
CICA 3031, Inventories replaces CICA 3030, Inventories and establishes
standards for measurement and disclosure of inventories. This standard
provides guidance on the determination of cost and subsequent recognition as
an expense, including any write-down to net realizable value and the reversal
of previous write-downs when there is a subsequent increase in the value of
inventories. It also provides guidance on the cost formulas that are used to
assign costs. The adoption of this standard did not have an impact on the
Corporation's financial statements.
Sections 3862 and 3863 replace section 3861 "Financial Instruments -
Disclosure and Presentation" which revises and enhances financial instruments
disclosure requirements and leaves unchanged its presentation requirements.
The objective of section 3862 is to provide financial statement disclosure to
enable users to evaluate the significance of financial instruments to the
Corporation's financial position and performance. The section also requires
increased disclosure on the nature and extent of risks arising from financial
instruments that the Corporation is exposed to during the reporting period and
the balance sheet date and how the corporation is managing those risks. The
purpose of section 3863 is to enhance the financial statement users'
understanding of the significance of financial instruments to the
Corporation's financial position, performance and cash flows.
The Canadian Accounting Standards Board (AcSB) has confirmed that the use
of the International Financial Reporting Standards ("IFRS") will be required
in 2011 for publicly accountable profit-oriented enterprises. IFRS will
replace Canada's current GAAP for those enterprises that are responsible to
large or diverse groups of stakeholders. The official changeover date is for
interim and annual financial statements relating to fiscal years beginning on
or after January 1, 2011. Companies will be required to provide comparative
IFRS information for the previous fiscal year. Galleon is currently evaluating
the impact of adopting IFRS.
Controls and Procedures over Financial Reporting
Galleon has established disclosure controls and procedures to provide
reasonable assurance that material information relating to Galleon, including
its consolidated subsidiaries, is made known to the Chief Executive Officer
(CEO) and the Chief Financial Officer (CFO) by others within those entities,
particularly during the period in which the annual and interim filings have
been prepared. The CEO and the CFO have designed or caused to be designed
under their supervision, internal controls over financial reporting to provide
reasonable assurance regarding the reliability of the Corporation's financial
reporting and the preparation of financial statements for external purposes in
accordance with Canadian GAAP.
The Corporation's CEO and CFO are required to cause the Corporation to
disclose any change in the Corporation's internal controls over financial
reporting that occurred during the Corporation's most recent interim period
that has material affected, or is reasonably likely to materially affect, the
Corporation's internal controls over financial reporting. No material changes
in the Corporation's internal controls over financial reporting were
identified during the Corporation's most recent interim period that has
materially affected, or are reasonably likely to materially affect, the
Corporation's internal controls over financial reporting.
It should be noted that a control system, including the Corporation's
disclosure and internal controls and procedures, no matter how well conceived,
can provide only reasonable, but not absolute, assurance that the objectives
of the control system will be met and it should not be expected that the
disclosure and internal controls and procedures will prevent all errors or
fraud.
Share Information
The following table summarizes the outstanding shares of Galleon as of
March 31:
2008 2007
-------------------------------------------------------------------------
Class A shares outstanding
Basic 67,798,274 57,898,077
Diluted(1) 74,594,691 63,272,402
Class B shares outstanding 922,500 922,500
Class A shares issuable on conversion
of Class B shares(2) 623,311 545,535
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes outstanding options of 6,796,417 (March 31, 2007 -
5,374,325).
(2) Assumes a conversion at the March 31, 2008 closing price of
$14.80 per Class A share (March 31, 2007 -$16.91). The actual
conversion rate varies based on a formula related to the trading
rice of the Class A shares.
At March 31, 2008, the market value of Galleon's class A and class B
shares was $1.0 billion based on the March 31, 2008 closing price of
$14.80 per class A share and $9.55 per class B share. As of May 13, 2008, the
number of class A shares, class B shares, and options outstanding are
72,562,827, 922,500, and 6,225,152 respectively.
Additional Information
Additional information relating to Galleon, including Galleon's Annual
Information Form, can be accessed on-line on SEDAR at www.sedar.com, or from
the Corporation's website at www.galleonenergy.com.
Quarterly Highlights 2008 2007
---------------------------------- --------------------------------------
Q1 Q4 Q3 Q2
Production
Light oil (Bbl/d) 4,871 4,419 3,375 3,317
Heavy oil (Bbl/d) 2,919 1,746 1,949 2,247
Natural Gas (Mcf/d) 52,644 49,486 48,989 45,314
Liquids (Bbl/d) 441 283 237 256
BOE/d 17,005 14,695 13,726 13,372
Total BOE produced 1,547,476 1,351,986 1,262,762 1,216,855
Daily BOE of
production per
million Class A
shares - basic(1) 254 232 229 226
Prices (net of
transportation)
Light oil ($/Bbl) 94.79 83.38 78.43 70.12
Heavy oil ($/Bbl) 63.52 37.32 40.04 35.89
Crude oil ($/Bbl) 85.20 64.40 63.25 56.30
Natural Gas ($/Mcf) 8.08 6.16 5.73 7.14
NGLs ($/Bbl) 59.59 72.90 64.05 59.67
Per BOE ($)
Revenues 65.60 52.77 47.64 49.91
Royalties, net of
ARTC and GCA (11.79) (8.55) (8.41) (9.04)
Transportation costs (1.04) (1.18) (1.13) (1.16)
Operating costs (11.28) (10.52) (8.35) (8.63)
Net 41.49 32.52 29.75 31.08
Other revenue 0.08 - - -
G&A (1.53) (2.00) (1.19) (1.48)
Interest (1.81) (1.83) (2.14) (2.20)
Capital and other taxes (0.22) 0.05 (0.18) (0.41)
Realized gain (loss)
on financial derivative (2.18) (2.49) (0.44) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds from operations(2) 35.83 26.25 25.80 26.99
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarterly Highlights 2007 2006
--------------------- ------------ --------------------------------------
Q1 Q4 Q3 Q2
Production
Light oil (Bbl/d) 3,127 2,419 1,823 1,753
Heavy oil (Bbl/d) 2,081 2,100 1,984 1,705
Natural Gas (Mcf/d) 38,845 36,733 33,068 30,014
Liquids (Bbl/d) 206 230 102 100
BOE/d 11,888 10,869 9,420 8,560
Total BOE produced 1,069,915 999,982 866,646 778,992
Daily BOE of
production per
million Class A
shares - basic(1) 206 191 172 165
Prices (net of
transportation)
Light oil ($/Bbl) 63.24 63.03 75.65 75.63
Heavy oil ($/Bbl) 36.55 31.16 47.01 42.69
Crude oil ($/Bbl) 52.57 47.19 53.35 59.39
Natural Gas ($/Mcf) 7.36 6.84 5.58 5.97
NGLs ($/Bbl) 56.64 56.02 69.83 65.71
Per BOE ($)
Revenues 49.51 45.26 46.06 46.88
Royalties, net of
ARTC and GCA (7.84) (6.02) (7.20) (4.34)
Transportation costs (1.47) (1.37) (1.25) (1.22)
Operating costs (8.86) (9.65) (10.66) (9.91)
Net 31.34 28.22 26.95 31.41
Other revenue - - - -
G&A (1.18) (2.67) (0.80) (1.37)
Interest (2.10) (1.49) (1.39) (1.41)
Capital and other taxes (0.21) (0.21) (0.33) (0.30)
Realized gain (loss)
on financial derivative 0.35
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds from operations(2) 28.20 23.85 24.43 28.33
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Restated to reflect a three-for-two Class A share split in June 2006.
(2) See "Non-GAAP Measurements"
Quarterly Highlights
(unaudited) 2008 2007
---------------------------------- --------------------------------------
Q1 Q4 Q3 Q2
Financial ($000s)
Revenues 101,516 71,339 60,156 60,734
Operating costs (17,460) (14,227) (10,547) (10,507)
General &
Administrative
expenses (2,371) (2,712) (1,507) (1,797)
Interest expense (2,803) (2,476) (2,707) (2,681)
Funds from
operations(2) 55,445 35,483 32,566 32,834
Per share,
basic(1,2) 0.83 0.56 0.54 0.55
Per share,
diluted(1,2) 0.81 0.55 0.53 0.54
Earnings 10,417 (495) 1,590 3,270
Per share, basic(1) 0.16 (0.01) 0.03 0.06
Per share, diluted(1) 0.15 (0.01) 0.03 0.05
Total assets 975,911 799,359 743,932 699,112
Weighted average
outstanding Class A
shares-basic(1) 67,034,895 63,206,585 59,880,135 59,204,393
Weighted average
outstanding Class A
shares-diluted(1) 68,630,474 64,716,872 61,724,550 61,175,217
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarterly Highlights
(unaudited) 2007 2006
---------------------------------- --------------------------------------
Q1 Q4 Q3 Q2
Financial ($000s)
Revenues 52,974 45,264 39,921 36,517
Operating costs (9,478) (9,651) (9,243) (7,716)
G&A (1,264) (2,670) (692) (1,068)
Interest (2,246) (1,487) (1,202) (1,098)
Funds from
operations(2) 30,170 23,857 21,178 22,069
Per share,
basic(1,2) 0.52 0.42 0.39 0.42
Per share,
diluted(1,2) 0.50 0.40 0.37 0.40
Earnings 3,921 1,906 2,196 7,985
Per share, basic(1) 0.07 0.03 0.04 0.15
Per share, diluted(1) 0.07 0.03 0.04 0.15
Total assets 692,749 614,565 540,980 477,967
Weighted average
outstanding Class A
shares-basic(1) 57,800,899 56,761,415 54,854,334 52,003,462
Weighted average
outstanding Class A
shares-diluted(1) 59,947,494 59,234,229 57,447,555 54,838,259
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Restated to reflect a three-for-two Class A share split in June 2006.
(2) See "Non-GAAP Measurements".
GALLEON ENERGY INC.
Consolidated Balance Sheets
As at March 31, December 31,
2008 2007
($000s) (unaudited)
-------------------------------------------------------------------------
ASSETS
CURRENT
Accounts receivable 52,890 35,406
Deposits and prepaid expenses 7,264 5,459
-------------------------------------------------------------------------
60,154 40,865
Future income taxes 612 -
Goodwill 36,027 16,022
Equipment inventory 4,242 2,829
Property and equipment 874,876 739,643
-------------------------------------------------------------------------
975,911 799,359
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 85,554 71,044
Capital lease 2,202 -
Bank loan 229,865 163,378
Fair value of financial derivatives 14,001 9,075
-------------------------------------------------------------------------
331,622 243,497
Asset retirement obligation 30,285 25,535
Future income taxes 71,617 52,299
Capital lease 3,091 -
-------------------------------------------------------------------------
436,615 321,331
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 467,690 419,011
Contributed surplus 21,236 19,064
Retained earnings 50,370 39,953
-------------------------------------------------------------------------
539,296 478,028
-------------------------------------------------------------------------
975,911 799,359
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GALLEON ENERGY INC.
Consolidated Statements of Earnings,
Comprehensive Income and Retained Earnings
Three months ended March 31
($000s, except per share amounts) (unaudited) 2008 2007
-------------------------------------------------------------------------
REVENUE
Petroleum and natural gas revenue 101,516 52,974
Royalties, net of GCA (18,245) (8,382)
Other income 123 -
-------------------------------------------------------------------------
83,394 44,592
EXPENSES
Operating 17,460 9,478
Transportation 1,615 1,587
General and administration 2,371 1,264
Interest 2,803 2,246
Stock-based compensation 2,771 1,861
Accretion 568 317
Depletion and depreciation 33,619 22,022
Realized loss (gain) on financial derivatives 3,361 (373)
Unrealized loss (gain) on financial derivatives 4,927 (479)
-------------------------------------------------------------------------
69,495 37,923
Earnings before taxes 13,899 6,669
Income taxes
Capital and other taxes 339 220
Future income taxes 3,143 2,528
-------------------------------------------------------------------------
3,482 2,748
NET EARNINGS AND COMPREHENSIVE INCOME 10,417 3,921
-------------------------------------------------------------------------
RETAINED EARNINGS, BEGINNING OF PERIOD 39,953 31,667
-------------------------------------------------------------------------
RETAINED EARNINGS, END OF PERIOD 50,370 35,588
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NET EARNINGS AND COMPREHENSIVE INCOME PER
SHARE
Basic $0.16 $0.07
Diluted $0.15 $0.07
Weighted average Class A shares - basic 67,034,895 57,800,899
- diluted 68,630,474 59,947,494
-------------------------------------------------------------------------
GALLEON ENERGY INC.
Consolidated Statements of Cash Flows
Three months ended March 31
($000s) (unaudited) 2008 2007
-------------------------------------------------------------------------
Cash provided by (used in):
OPERATING ACTIVITIES
Net earnings 10,417 3,921
Items not requiring cash:
Future income taxes 3,143 2,528
Depletion and depreciation 33,619 22,022
Accretion 568 317
Stock-based compensation 2,771 1,861
Unrealized loss (gain) on financial
derivative 4,927 (479)
Abandonment costs (1,103) (347)
Change in non-cash working capital (12,957) (2,063)
-------------------------------------------------------------------------
41,385 27,760
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of common shares 1,838 800
Share issue costs (92) (4)
Capital lease payment (484) -
Bank loan 66,488 66,418
Debt assumed on acquisition of ExAlta (46,283) -
-------------------------------------------------------------------------
21,467 67,214
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to equipment inventory (123) -
Additions to oil and gas properties (71,326) (61,209)
Acquisition of oil and gas properties (1,783) (28,706)
Change in non-cash working capital 10,380 (5,059)
-------------------------------------------------------------------------
(62,852) (94,974)
-------------------------------------------------------------------------
CHANGE IN CASH - -
CASH, BEGINNING OF PERIOD - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CASH, END OF PERIOD - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Cash interest paid 2,803 2,235
Cash taxes paid 390 165
Galleon is a technically oriented high growth oil and gas company with
focused operations in the Peace River area of Alberta. Galleon has access to
over 1 million gross acres of land.
Galleon has approximately 72.6 million Class A shares and 922,500 Class B
shares issued and outstanding which trade on the TSX under the symbols "GO.A"
and "GO.B".
ADVISORY: Certain information regarding Galleon Energy Inc. in this news
release including management's assessment of future plans and operations,
number, type and timing of wells to be drilled, the plan and development of
certain prospects, production estimates, expected production growth, capital
expenditures and the method of funding thereof may constitute forward-looking
statements under applicable securities laws and necessarily involve risks
including, without limitation, risks associated with oil and gas exploration,
development, exploitation, production, marketing and transportation, loss of
markets, volatility of commodity prices, currency fluctuations, imprecision of
reserve estimates, environmental risks, competition from other producers,
inability to retain drilling rigs and other services, capital expenditure
costs, including drilling, completion and facilities costs, unexpected decline
rates in wells, wells not performing as expected, incorrect assessment of the
value of acquisitions, delays resulting from or inability to obtain required
regulatory approvals and ability to access sufficient capital from internal
and external sources. As a consequence, actual results may differ materially
from those anticipated in the forward-looking statements. Readers are
cautioned that the foregoing list of factors is not exhaustive.
Forward-looking statements contained herein are made as of the date hereof and
Galleon does not undertake any obligation to update publicly or to revise any
of the forward-looking statements, whether the result of new information,
future events or otherwise, except as may be required by applicable securities
laws.
Additional information on these and other factors that could effect
Galleon's operations and financial results are included in reports on file
with Canadian securities regulatory authorities and may be accessed through
the SEDAR website (www.sedar.com), at Galleon's website
(www.galleonenergy.com). Furthermore, the forward-looking statements contained
in this news release are made as at the date of this news release and Galleon
does not undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new information,
future events or otherwise, except as may be required by applicable securities
laws.
Disclosure provided herein in respect of barrels of oil equivalent (boe)
may be misleading, particularly if used in isolation. A boe conversion ratio
of 6 Mcf: 1 Bbl is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead.
For further information: SEE www.galleonenergy.com OR CONTACT: Steve
Sugianto, President and Chief Executive Officer, (403) 261-9287,
steves@galleonenergy.com; Glenn R. Carley, Executive Chairman, (403) 261-9277,
glennc@galleonenergy.com; Shivon Crabtree, Vice President and Chief Financial
Officer, (403) 261-9276
