Bellatrix Exploration Ltd. announces third quarter 2009 financial results
TSX: BXE
Bellatrix common shares and debentures are listed on the
HIGHLIGHTS
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Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
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FINANCIAL (unaudited)
(CDN$000s except unit
and per unit amounts)
Revenue (before
royalties and
hedging(1)) 23,860 72,225 85,010 224,332
Funds flow from
operations(2) 11,090 21,491 28,344 72,028
Per basic trust unit $0.14 $0.27 $0.36 $0.91
Per diluted trust
unit(6) $0.14 $0.27 $0.36 $0.91
Net income (loss) (9,633) 29,939 (118,404) (10,056)
Per basic trust unit $(0.12) $0.38 $(1.51) $(0.13)
Per diluted trust
unit(6) $(0.12) $0.38 $(1.51) $(0.13)
Distributions declared - 9,474 1,570 28,486
Per unit - $0.12 $0.02 $0.36
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Exploration and
development 2,682 14,097 6,238 26,204
Corporate and property
acquisitions 28 (286) 379 337
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Capital expenditures
- cash 2,710 13,811 6,617 26,541
Property dispositions
- cash (84,696) (32) (92,977) (44,350)
Other - non-cash 178 (144) (1,043) (2,858)
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Total capital
expenditures - net (81,808) (13,635) (87,403) (20,667)
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Long-term debt 26,485 116,591 26,485 116,591
Convertible debentures(3) 82,549 80,693 82,549 80,693
Working capital excess (4,701) (3,511) (4,701) (3,511)
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Total net debt(3) 104,333 193,773 104,333 193,773
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Total assets 443,115 752,030 443,115 752,030
Unitholders' equity 286,841 424,121 286,841 424,121
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OPERATING
Daily sales
volumes
Crude oil,
condensate
and NGLs (bbls/d) 2,253 3,977 3,292 4,329
Natural gas (mcf/d) 31,075 43,715 34,547 47,480
Total oil
equivalent (boe/d) 7,432 11,263 9,050 12,242
Average prices
Crude oil,
condensate
and NGLs ($/bbl) 57.77 96.89 48.07 89.49
Crude oil,
condensate
and NGLs
(including
hedging(1) ($/bbl) 57.77 77.39 48.07 73.32
Natural gas ($/mcf) 3.89 8.97 4.26 8.92
Natural gas
(including
hedging(1)) ($/mcf) 5.84 7.80 5.74 8.20
Total oil
equivalent ($/boe) 33.79 69.03 33.74 66.24
Total oil
equivalent
(including
hedging(1)) ($/boe) 41.94 57.61 39.40 57.71
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Statistics
Operating
netback(4) ($/boe) 16.24 38.31 12.56 36.39
Operating
netback(4)
(including
hedging(1)) ($/boe) 24.39 26.90 18.23 27.87
Transportation ($/boe) 0.50 2.45 1.28 1.75
Production
expenses ($/boe) 13.29 14.95 14.15 14.51
General &
administrative ($/boe) 4.75 3.48 3.51 3.54
Royalties as a
% of sales
after
Transportation 11% 20% 18% 21%
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TRUST UNITS
Trust units
outstanding 78,496,581 78,862,690 78,496,581 78,862,690
Trust unit
incentive rights
outstanding 4,039,229 2,539,166 4,039,229 2,539,166
Units issuable
for exchangeable
shares 312,467 340,642 312,467 340,642
Units issuable for
convertible
debentures(5) 5,390,625 5,390,625 5,390,625 5,390,625
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Diluted trust units
outstanding 88,238,902 87,133,123 88,238,902 87,133,123
Diluted weighted
average trust
units(6) 78,496,581 78,996,154 78,496,581 79,140,544
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TRUST UNIT TRADING STATISTICS
(CDN$, except volumes) based
on intra-day trading
High 1.13 4.45 1.56 4.69
Low 0.67 2.74 0.48 2.74
Close 1.07 3.03 1.07 3.03
Average daily volume 203,568 257,512 166,148 260,393
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(1) The Trust has entered into various commodity risk management
contracts which are considered to be economic hedges. Per unit
metrics after hedging includes only the realized portion of gains or
losses on commodity contracts.
The Trust does not apply hedge accounting to these contracts. As
such, these contracts are revalued to fair value at the end of each
reporting date. This results in recognition of unrealized gains or
losses over the term of these contracts which is reflected each
reporting period until these contracts are settled, at which time
realized gains or losses are recorded. These unrealized gains or
losses on commodity contracts are not included for purposes of per
unit metrics calculations disclosed.
(2) The highlights section contains the term "funds flow from
operations" (or as commonly referred to as "cash flow from
operations"), which should not be considered an alternative to, or
more meaningful than cash flow from operating activities as
determined in accordance with Canadian generally accepted accounting
principles ("GAAP") as an indicator of the Trust's performance.
Therefore reference to diluted funds flow from operations or funds
flow from operations per trust unit may not be comparable with the
calculation of similar measures for other entities. Management uses
funds flow from operations to analyze operating performance and
leverage and considers funds flow from operations to be a key measure
as it demonstrates the Trust's ability to generate the cash necessary
to fund future capital investments and to repay debt. The
reconciliation between cash flow from operating activities and funds
flow from operations can be found in the Management Discussion and
Analysis ("MD&A"). Funds flow from operations per trust unit is
calculated using the weighted average number of trust units for the
period.
(3) Net debt and total net debt are considered non-GAAP terms. The
Trust's calculation of net debt includes the net working capital
deficiency (excess) before short-term commodity contract assets and
liabilities, current portion of long-term debt and short-term future
income tax assets and liabilities. Total net debt also includes the
liability component of convertible debentures and excludes asset
retirement obligations and the future income tax liability. A
reconciliation between total liabilities under GAAP and total net
debt as calculated by the Trust is found in the MD&A.
(4) Operating netbacks are a non-GAAP term. Operating netbacks are
calculated by subtracting royalties, transportation, and operating
costs from revenues.
(5) Units issuable for convertible debentures are calculated as the
$86.25 million principal amount of the convertible debentures divided
by the conversion price of $16.00 per unit available to debenture
holders.
(6) In computing weighted average diluted earnings per trust unit and
weighted average diluted funds flow from operations for both the
three and nine month periods ended September 30, 2009 a total of
4,039,229 (2008: 2,539,166) trust incentive units, 312,467 (2008:
340,642) exchangeable shares and 5,390,625 (2008: 5,390,625) trust
units issuable pursuant to the conversion of convertible debentures
were excluded from the calculation of diluted earnings per trust unit
and weighted average diluted funds flow from operations as they were
not dilutive.
REPORT TO SHAREHOLDERS
On
We accomplished significant steps in the restructuring of the Trust through the first nine months of 2009. Following changes to the senior management team earlier in the year, the Trust's restructuring efforts were consistent with a number of objectives including:
- Operating within cash flow: targeted reductions in G&A, operating
costs and staffing levels in early 2009; maintaining an active
hedging program to mitigate vulnerability to negative commodity price
fluctuations.
- Controlled capital program: a total capital program for 2009
initially budgeted at $15 million, but recently increased to $19
million.
- Production base focus: continued optimization, maintenance and
production tie-ins.
- Continued debt management: Reduced net debt by $61 million over the
2007 and 2008 fiscal years while paying distributions; net debt was
further reduced $111 million for the first nine months of 2009 due in
large part to strategic dispositions completed in the year. On August
17, 2009, new total $85 million bank syndicate credit facilities were
entered into, with a total of $26.5 million drawn under the
facilities as of September 30, 2009. On November 1, 2009, Bellatrix
confirmed its $85 million facilities with existing lenders on
substantially the same terms and conditions.
- Corporate conversion completed effective November 1, 2009
Following these restructuring efforts and our substantially improved financial flexibility, we are well positioned to focus on the balance of our 2009 drilling program currently underway.
Production levels have been maintained by diligent field optimization programs designed to arrest decline. Sales volumes averaged 7,432 boe/d in the third quarter in spite of plant turnarounds and the sale of the majority of the Trust's Saskatchewan production closing
As of
On
Operating results
- During the third quarter of 2009, True drilled, completed and placed
on production its first 100% interest well in September 2009 at
Willesden Green in West Central Alberta. To date including the
aforementioned well, True has drilled or participated in 8 wells (7.5
net) at Willesden Green, Pembina, Irvine and Mantario; True operated
7 of 8 wells drilled. True had 100% success rate in the eight wells
drilled, all of the wells have been completed, tested and are
currently on production or being tied in.
- True expects to drill four additional gross wells (3.35 net) prior to
year end; three horizontal wells (two Notikewin and one Cardium) at
Ferrier and Pembina and one vertical test at West Pembina. True is
currently drilling the first of four wells, a 3,178 meter Notikewin
horizontal test at Ferrier with an 85% WI. Bellatrix's total capital
expenditure program for the 4th quarter is anticipated to be
approximately $12.4 million. The Alberta wells drilled by Bellatrix
take advantage of the Alberta Government Royalty incentive program.
- 58% of True's natural gas production for Q4 2009 is forward sold at
an average price of $7.75 CAD/mcf, and approximately 29% of its
natural gas production for 2010 is hedged at an average of price
$7.01 CAD/mcf. These conversions to "mcf" are based on True's
corporate average heat content factor of 39 Mj/m3. In addition, 500
bbl/d of oil for Q4 is hedged by way of a costless collar of $52.30
CAD x $80.70 CAD.
- On August 17, 2009, True finalized new syndicated credit facilities
to replace its then existing bank facilities. The new facilities
consist of a $10 million demand operating facility provided by one
Canadian bank and a $75 million extendible revolving term credit
facility provided by one Canadian bank and one Canadian financial
institution. As of September 30, 2009 there was approximately $26.5
million drawn on True's existing facilities.
The third quarter of 2009 featured continued erosion of natural gas
pricing primarily as a result of the supply and demand imbalance associated
with the persistent global economic recession. Third quarter financial results
include:
- 2009 third quarter sales volumes averaged 7,432 boe/d compared to
9,767 boe/d in the second quarter of 2009. The decrease in production
is a result of the divestitures completed at the end of the second
quarter and first part of the third quarter of 2009. True initiated a
production optimization and maintenance program at the beginning of
the year. This program has not only arrested True's production
decline through the first three quarters, but also increased overall
deliverability without drilling or recompleting wells.
- Cash flow from operating activities and funds flow from operations
for the third quarter of 2009 was $12.2 million and $11.1 million,
respectively, on gross sales of $23.9 million compared to cash flow
from operating activities and funds flow from operations for the
second quarter of 2009 of $6.5 million and $10.8 million,
respectively, on gross sales of $29.8 million.
- The net loss for the third quarter of 2009 was $9.6 million compared
to a net income of $29.9 million for the same period in 2008 and a
net loss of $99.7 million in the second quarter of 2009. The net loss
for Q2 2009 was primarily the result of a non-cash accounting loss on
petroleum and natural gas properties held for sale of $114.2 million.
This amount was calculated as the excess of the historical net book
value allocated to Saskatchewan oil and gas property assets sold as
compared to the estimated total net proceeds received on closing.
- True's total net debt as of September 30, 2009, excluding a net
unrealized commodity contract asset of $5.0 million, future income
taxes and asset retirement obligations is approximately $104.3
million, represented by $26.5 million outstanding on the credit
facilities, $82.5 million in convertible debentures (liability
component), and the net balance of a working capital surplus. Funds
from strategic divestitures executed in the second and third quarters
of 2009 have been used to reduce True's net debt.
- True's natural gas price for the third quarter of 2009, after
including hedging, was $5.84/mcf compared to $7.80/mcf for the same
period in 2008.
- Capital expenditures for the third quarter of 2009 were $2.7 million
which were funded by available cash flow.
- As of September 30, 2009, the Trust had approximately $384 million in
tax pools for deduction against future income.
Bellatrix's production guidance remains unchanged. Fourth quarter production is anticipated to be approximately 6,500 boe/d, comprised of 31.7 mmcf/d of natural gas and 1,230 bbls/d of light/medium oil. Bellatrix anticipates 2009 average production rate of 8,100 boe/d and a 2009 production exit rate of 7,000 boe/d based on normal decline rates and risked production adds from Bellatrix's capital program.
Bellatrix has approximately 268,000 net acres of undeveloped land with in excess of 300 exploitation drilling opportunities identified representing over 5 years of drilling inventory.
2010 Outlook
Bellatrix is well positioned following a stressful year of reorganization to move forward with a corporate organic growth model, coupled with a mandate to seek opportunities that will complement our assets or through future development potential. An initial capital budget of
Bellatrix is a company dedicated to "the pursuit of sustainable growth" for its stakeholders.
Raymond G. Smith, P. Eng.
President and CEO
November 5, 2009
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONVERSION: The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 mcf/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. All boe conversions in this report are derived from converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.
NON-GAAP MEASURES: This Management's Discussion and Analysis contains the term "funds flow from operations" (or also commonly referred to as "cash flow from operations"), which should not be considered an alternative to, or more meaningful than "cash flow from operating activities" as determined in accordance with Canadian GAAP as an indicator of the Trust's performance. Therefore reference to funds flow from operations or funds flow from operations per unit may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Trust's ability to generate the cash necessary to fund future capital investments and to repay debt. The reconciliation between cash flow from operating activities and funds flow from operations can be found in the Management's Discussion and Analysis. Funds flow from operations per unit is calculated using the weighted average number of units for the period.
This Management's Discussion and Analysis also contains other terms such as total net debt and operating netbacks, which are not recognized measures under Canadian GAAP. Total net debt is calculated as long-term debt plus the liability component of the convertible debentures and the net working capital deficiency (excess) before short-term commodity contract assets and liabilities, current portion of long-term debt and short-term future income tax assets and liabilities. Operating netbacks are calculated by subtracting royalties, transportation, and operating expenses from revenues. The reconciliation between total liabilities and net debt is contained in the Management's Discussion and Analysis. Management believes these measures are useful supplemental measures of firstly, the total amount of current and long-term debt and secondly, the amount of revenues received after transportation, royalties and operating expenses. Readers are cautioned, however, that these measures should not be construed as an alternative to other terms such as current and long-term debt or net income determined in accordance with GAAP as measures of performance. True's method of calculating these measures may differ from other entities, and accordingly, may not be comparable to measures used by other trusts or companies.
Additional information relating to the Trust, including the Trust's Annual Information Form, is available on SEDAR at www.sedar.com.
FORWARD LOOKING STATEMENTS: Certain information contained herein may contain forward looking statements including management's assessment of future plans and operations, drilling and tie-in plans and the timing thereof, expected or anticipated average and exit production rates, hedging strategies, anticipated liquidity of the Trust and various matters that may impact such liquidity, planned reductions in operating expenses in 2009 and expected operating expenses, expected royalty rates and administrative expenses, expected levels of revenues and operating expenses and operating netbacks in 2009 compared to 2008, the expected effect of dispositions on debt to funds flow ratios, the use of forecast funds flow from operations, expected cost of drilling commitments, the proportion of distributions anticipated to be taxable, maintenance of productive capacity and capital expenditures and the nature of capital expenditures and the timing and method of financing thereof, and the expectation that no dividends will be payable by Bellatrix following completion of the Reorganization 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, 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. The recovery and reserve estimates of True's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Events or circumstances may cause actual results to differ materially from those predicted, as a result of the risk factors set out and other known and unknown risks, uncertainties, and other factors, many of which are beyond the control of True. In addition, forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information in order to provide shareholders with a more complete perspective on Bellatrix's future operations. Such information may prove to be incorrect and readers are cautioned that the information may not be appropriate for other purposes. Although the Trust 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 Trust can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, 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 Trust operates; the timely receipt of any required regulatory approvals; the ability of the Trust 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 Trust has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Trust 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 Trust to secure adequate product transportation; future commodity gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Trust operates; and the ability of the Trust to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Additional information on these and other factors that could effect True'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 Bellatrix's website (www.bellatrixexploration.com). Furthermore, the forward-looking statements contained herein are made as at the date hereof and True 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.
The reader is further cautioned that the preparation of financial statements in accordance with GAAP requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.
Overview and Description of the Business
True Energy Trust is a Canadian trust, formed in 2005 via the reverse takeover of TKE Energy Trust. The Trust is involved in the exploration, development and production of petroleum and natural gas in western
On
Pursuant to the Arrangement, the Unitholders' Capital of the Trust Units as of the effective date of
The Reorganization will be accounted for on a continuity of interest basis and accordingly, the consolidated financial statements for periods prior to the effective date of the Reorganization will reflect the financial position, results of operations and cash flows as if the Company had always carried on the business formerly carried on by the Trust.
Bellatrix common shares and debentures are listed on the
Third Quarter 2009 Financial and Operational Results
Dispositions
The Trust's focus in 2009 has been on the restructuring and strengthening of its balance sheet. The Trust had two minor dispositions in the second quarter and successfully completed the divestiture of the majority of its petroleum and natural gas properties in Saskatchewan in the third quarter. Net proceeds from the dispositions were used to reduce the Trust's bank indebtedness; these strategic accomplishments will allow the Company to progress forward with substantially improved financial flexibility.
On
On
Sales Volumes
Sales volumes for the three months ended
The decrease in average sales volumes from third quarter 2008 to 2009 is a result of natural production decline, minimal 2009 capital spending and dispositions during 2009 totaling approximately 3,000 boe/d and dispositions totaling approximately 1,000 boe/d that were closed during the second quarter of 2008, partially offset by tuck-in acquisitions completed in the fourth quarter of 2008 that added approximately 250 boe/d. During the first quarter of 2009, True implemented a full scale field optimization and maintenance program throughout True's operated properties. The field optimization programs were designed to arrest production declines and increase overall deliverability without drilling or recompleting wells.
Sales Volumes
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Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
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Natural gas (mcf/d) 31,075 43,715 34,547 47,480
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Heavy oil (bbls/d) 1,300 2,820 2,191 2,789
Light oil and
condensate (bbls/d) 662 760 766 1,088
NGLs (bbls/d) 291 397 335 452
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Total crude
oil and NGLs (bbls/d) 2,253 3,977 3,292 4,329
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Total boe/d (6:1) 7,432 11,263 9,050 12,242
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During the third quarter of 2009, True drilled, completed and placed on production its first 100% working interest well at Willesden Green in West Central Alberta.
For the three months ended
Sales of natural gas averaged 31.1 Mmcf/d for the third quarter of 2009, compared to 43.7 Mmcf/d in the same 2008 period, a decrease of 29%. Crude oil and NGL sales for the 2009 third quarter decreased 15% averaging 2,253 bbls/d compared to the 2008 third quarter average sales of 3,977 bbls/d.
For the fourth quarter of 2009, production volumes are anticipated to average approximately 6,500 boe/d and a 2009 production exit rate of 7,000 boe/d. The forecast of 2009 production volumes has been updated from the 10,000 boe/d forecast previously reported to include the recent disposition activity. The forecast is based on assumptions, including normal production declines and expenditures under the current updated planned capital budget for 2009 of
Commodity Prices
Average Commodity Prices
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Three months ended Nine months ended
September 30, September 30,
% %
2009 2008 Change 2009 2008 Change
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Exchange rate (US$/Cdn$) 0.9108 1.0000 (9) 0.8839 0.9980 (11)
Natural gas:
NYMEX (US$/mmbtu) 3.44 8.99 (62) 3.62 9.67 (63)
AECO daily index
(CDN$/Mcf) 2.94 7.74 (62) 3.19 8.61 (63)
AECO monthly index
(CDN$/Mcf) 3.02 9.24 (67) 3.34 8.57 (61)
True's average price
($/mcf) 3.89 8.97 (57) 4.26 8.92 (52)
True's average price
(including hedging(1))
($/mcf) 5.84 7.80 (25) 5.74 8.20 (30)
Crude oil:
WTI (US$/bbl) 68.22 118.28 (42) 64.17 113.43 (43)
Edmonton par -
light oil ($/bbl) 71.71 122.61 (42) 62.68 115.85 (46)
Bow River - medium/heavy
oil ($/bbl) 64.97 104.95 (38) 56.81 95.53 (41)
Hardisty Heavy - heavy
oil ($/bbl) 61.11 98.07 (38) 52.85 88.23 (40)
True's average prices
($/bbl)
Light crude oil,
condensate, and NGLs 56.23 107.55 (48) 48.19 98.85 (51)
Heavy crude oil 58.89 92.51 (36) 48.01 84.32 (43)
Total crude oil and
NGLs 57.77 96.89 (40) 48.07 89.49 (46)
Total crude oil and
NGLs (including
hedging(1)) 57.77 77.39 (25) 48.07 73.32 (34)
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(1) Per unit metrics including hedging include realized gains or losses
on commodity contracts and exclude unrealized gains or losses on
commodity contracts.
True's natural gas sales are priced with reference to the daily or monthly AECO indices. During the 2009 third quarter, the AECO daily and monthly reference price decreased by 62% and 67%, respectively, compared to the same period in 2008. True's average sales price before hedging for the 2009 third quarter decreased by 25% compared to the same period in 2008. The Trust's natural gas physical sales contract to deliver 5,275 GJ/day at a fixed price of
The Company has entered into a natural gas physical delivery sales contract to sell 5,275 GJ/day at a fixed price of
For heavy crude oil, True received an average price before transportation of
For light oil, condensate and NGLs, True recorded an average
WTI crude oil prices varied greatly throughout 2008, increasing significantly to a high of US$147/bbl in July and dramatically falling during the fourth quarter of 2008 with
Revenue
Revenue before other income and hedging for the three month period ended
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Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
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Light crude oil,
condensate and NGLs 4,930 11,455 14,478 41,717
Heavy oil 7,040 23,999 28,729 64,425
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Crude oil and NGLs 11,970 35,454 43,207 106,142
Natural gas 11,133 36,073 40,159 116,034
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Total revenue before
other 23,103 71,527 83,366 222,176
Other(1) 757 698 1,644 2,156
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Total revenue before
royalties and hedging 23,860 72,225 85,010 224,332
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(1) Other revenue primarily consists of processing and other third party
income.
Revenues for the remainder of 2009 are currently expected to be lower than 2008 due to lower commodity prices and average estimated 2009 year production of approximately 8,100 boe/d, after adjusting for divestitures that closed during the year.
Commodity Price Risk Management
The Trust has a formal risk management policy which permits management to use specified price risk management strategies as determined by the board of directors including fixed price contracts, collars and the purchase of floor price options and other derivative financial instruments and physical delivery sales contracts to reduce the impact of price volatility and ensure minimum prices for a maximum of eighteen months beyond the current date. The program is designed to provide price protection on a portion of the Trust's future production in the event of adverse commodity price movement, while retaining significant exposure to upside price movements. By doing this, the Trust seeks to provide a measure of stability to funds flow from operations, as well as, to ensure True realizes positive economic returns from its capital development and acquisition activities. The Company will continue its hedging strategies focusing on maintaining sufficient cash flow to fund the Company's operations. Any remaining unhedged production is realized at market prices.
A summary of the financial commodity price risk management volumes and average prices by quarter currently outstanding as of
Natural gas
Average Volumes (GJ/d)
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Q4 2009
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Fixed 15,000
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Q1 2010 Q2 2010 Q3 2010 Q4 2010
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Fixed 10,000 10,000 10,000 10,000
Call option (ceiling
price) 5,000 5,000 5,000 5,000
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Total GJ/d 15,000 15,000 15,000 15,000
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Average Price ($/GJ AECO C)
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Q4 2009
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Fixed 6.75
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Q1 2010 Q2 2010 Q3 2010 Q4 2010
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Fixed 7.58 6.06 5.66 6.25
Call option (ceiling
price) 8.05 8.05 8.05 8.05
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Crude oil and liquids
Average Volumes (bbls/d)
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Q4 2009
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Costless collars 500
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Total bbls/d 500
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Average Price (CDN$/bbl WTI)
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Q4 2009
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Collar ceiling price 80.70
Collar floor price 52.30
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Included in the above natural gas table is a fixed price contract of
As of
The following is a summary of the gain (loss) on commodity contracts for the three and nine months ended
Commodity contracts
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Crude Oil Natural Q3 2009 Q3 2008
($000s) & Liquids Gas Total Total
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Realized cash gain
(loss) on contracts - 5,572 5,572 (11,831)
Unrealized gain (loss)
on contracts(1) 594 (4,445) (3,851) 49,911
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Total gain (loss) on
commodity contracts 594 1,127 1,721 38,080
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Crude Oil Natural YTD 2009 YTD 2008
($000s) & Liquids Gas Total Total
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Realized cash gain
(loss) on contracts - 13,992 13,992 (28,592)
Unrealized gain (loss)
on contracts(1) (111) 1,400 1,289 6,674
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Total gain (loss) on
commodity contracts (111) 15,392 15,281 (21,918)
-------------------------------------------------------------------------
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(1) Unrealized gain (loss) commodity contracts represent non-cash
adjustments for changes in the fair value of these contracts during
the period.
Royalties
For the three months ended
-------------------------------------------------------------------------
Royalties by
Commodity Type Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Light crude oil,
condensate and NGLs 1,369 2,893 3,952 9,556
$/bbl 15.62 27.16 13.16 22.64
Average light crude
oil, condensate and
NGLs royalty rate (%) 27 26 27 23
Heavy Oil 689 4,174 5,183 11,806
$/bbl 5.77 16.09 8.66 15.45
Average heavy oil
royalty rate (%) 10 18 19 19
Natural Gas 512 6,732 5,067 24,226
$/mcf 0.18 1.67 0.54 1.86
Average natural gas
royalty rate (%) 5 19 13 21
-------------------------------------------------------------------------
Total 2,570 13,799 14,202 45,588
-------------------------------------------------------------------------
$/boe 3.76 13.32 5.75 13.59
-------------------------------------------------------------------------
Average total royalty
rate (%) 11 20 18 21
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Royalties, by Type
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
-------------------------------------------------------------------------
Crown royalties 609 6,931 6,700 25,474
Freehold & GORR 1,314 4,837 4,392 14,548
Indian Oil and Gas
Canada royalties 515 2,031 2,488 5,566
Saskatchewan resource
surcharge 132 - 622 -
-------------------------------------------------------------------------
Total 2,570 13,799 14,202 45,588
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Expenses
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
-------------------------------------------------------------------------
Production 9,089 15,494 34,951 48,660
Transportation 340 2,534 3,170 5,855
General and
administrative 3,244 3,610 8,667 11,872
Interest and financing
charges 3,573 3,318 11,093 11,321
Unit-based compensation (3) 660 (363) 1,089
-------------------------------------------------------------------------
Expenses per boe
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($ per boe) 2009 2008 2009 2008
-------------------------------------------------------------------------
Production 13.29 14.95 14.15 14.51
Transportation 0.50 2.45 1.28 1.75
General and administrative 4.75 3.48 3.51 3.54
Interest and financing
charges 5.22 3.20 4.49 3.37
Unit-based compensation (0.01) 0.64 (0.15) 0.72
-------------------------------------------------------------------------
Production Expenses
For the three months ended
Bellatrix is targeting operating costs of approximately
Production Expenses, by Commodity Type
-------------------------------------------------------------------------
Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Light crude oil,
condensate and NGLs 2,074 2,974 6,701 8,248
$/bbl 23.65 27.92 22.30 19.55
Heavy oil 1,780 6,612 9,928 17,455
$/bbl 14.89 25.49 16.59 22.85
Natural gas 5,235 5,908 18,322 22,957
$/mcf 1.83 1.47 1.94 1.76
-------------------------------------------------------------------------
Total 9,089 15,494 34,951 48,660
-------------------------------------------------------------------------
$/boe 13.29 14.95 14.15 14.51
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total 9,089 15,494 34,951 48,660
-------------------------------------------------------------------------
Processing and other
third party income(1) (757) (698) (1,644) (2,156)
-------------------------------------------------------------------------
Total after deducting
processing and other
third party income 8,332 14,796 33,307 46,504
-------------------------------------------------------------------------
$/boe 12.19 14.28 13.48 13.86
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Processing and other third party income is included within petroleum
and natural gas sales on the statement of income.
Transportation
Transportation expenses for the three month period ended
Operating Netback
Field Operating Netback - Corporate (before hedging)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($/boe) 2009 2008 2009 2008
-------------------------------------------------------------------------
Sales 33.79 69.03 33.74 66.24
Transportation (0.50) (2.45) (1.28) (1.75)
Royalties (3.76) (13.32) (5.75) (13.59)
Production expense (13.29) (14.95) (14.15) (14.51)
-------------------------------------------------------------------------
Field operating netback 16.24 38.31 12.56 36.39
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the third quarter of 2009, corporate field operating netback (before hedging) was
Overall, corporate operating netbacks for 2009 are currently expected to be lower than 2008 due to anticipated lower commodity prices.
Field Operating Netback - Natural Gas (before hedging)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($/mcf) 2009 2008 2009 2008
-------------------------------------------------------------------------
Sales 3.89 8.97 4.26 8.92
Transportation (0.20) (0.33) (0.20) (0.18)
Royalties (0.18) (1.67) (0.54) (1.86)
Production expense (1.83) (1.47) (1.94) (1.76)
-------------------------------------------------------------------------
Field operating netback 1.68 5.50 1.58 5.12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Field operating netback for natural gas in the third quarter of 2009
decreased 69% to $1.68/mcf, compared to $5.50/mcf in the same 2008 period,
primarily reflecting weakening natural gas prices experienced. After including
hedging activities, field operating netback for natural gas in the three
months ended September 30, 2009 was $3.63/mcf compared to $4.33/mcf in the
same period in 2008.
Field Operating Netback - Crude Oil, Condensate and NGLs (before hedging)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($/bbl) 2009 2008 2009 2008
-------------------------------------------------------------------------
Sales 57.77 96.89 48.07 89.49
Transportation 1.15 (3.31) (1.39) (2.98)
Royalties (9.94) (19.31) (10.16) (18.01)
Production expense (18.60) (26.20) (18.50) (21.67)
-------------------------------------------------------------------------
Field operating netback 30.38 48.07 18.02 46.83
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Field operating netback for crude oil, condensate and NGLs averaged
General and Administrative
Total general and administrative ("G&A") expenses for the three and nine months ended
General and Administrative Expenses
-------------------------------------------------------------------------
Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Gross expenses 3,618 4,690 10,182 15,077
Capitalized (106) (664) (318) (1,863)
Recoveries (268) (416) (1,197) (1,342)
-------------------------------------------------------------------------
Total G&A expenses 3,244 3,610 8,667 11,872
-------------------------------------------------------------------------
Total G&A expenses,
per unit ($/boe) 4.75 3.48 3.51 3.54
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest and Financing Charges
True recorded
Interest and Financing Charges
-------------------------------------------------------------------------
Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Interest and financing
charges 3,573 3,318 11,093 11,321
Interest and financing
charges ($/boe) 5.22 3.20 4.49 3.37
Debt to funds flow from
operations ratio
(annualized)(2)
Total net debt(1) at
quarter end 104,333 193,773 104,333 193,773
Total net debt to
periods funds flow
from operations ratio
(annualized) 2.4x 2.3x 2.8x 2.0x
Net debt(1) (excluding
convertible debentures)
at quarter end 21,784 113,080 21,784 113,080
Net debt to periods
funds flow from
operations ratio
(annualized)(2) 0.5x 1.3x 0.6x 1.2x
Debt to funds flow from
operations ratio
(trailing)(3)
Total net debt to
periods funds flow
from operations ratio
(trailing) 2.0x 2.1x 2.0x 2.1x
Net debt to periods
funds flow from
operations ratio
(trailing) 0.4x 2.1x 0.4x 2.1x
-------------------------------------------------------------------------
(1) Net debt includes the net working capital deficiency (excess) before
short-term commodity contract assets and liabilities, current portion
of long-term debt and short-term future tax assets and liabilities.
Total net debt also includes the liability component of convertible
debentures and excludes asset retirement obligations and the future
income tax liability. Total net debt is a non-GAAP measure; refer to
the following reconciliation of total liabilities to total net debt.
(2) Total net debt and net debt to periods funds flow from operations
ratio (annualized) is calculated based upon annualizing funds flow
from operations for the three and nine month periods ended September
30, 2009, respectively.
(3) Trailing periods funds flow from operations is based on the trailing
twelve month period ended September 30, 2009 and 2008.
Reconciliation of Total Liabilities to Total Net Debt
-------------------------------------------------------------------------
Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Total liabilities per
financial statements 153,861 324,371 153,861 324,371
Current liabilities
included within
working capital
calculation (19,084) (48,059) (19,084) (48,059)
Asset retirement
obligations (24,776) (26,702) (24,776) (26,702)
Future income taxes
- long-term (967) (52,326) (967) (52,326)
Working Capital
Current assets (27,327) (49,001) (27,327) (49,001)
Current liabilities 19,084 48,059 19,084 48,059
Net commodity contract
asset 5,015 (3,669) 5,015 (3,669)
Net future income taxes
- current (1,473) 1,100 (1,473) 1,100
-------------------------------------------------------------------------
(4,701) (3,511) (4,701) (3,511)
-------------------------------------------------------------------------
Total net debt 104,333 193,773 104,333 193,773
-------------------------------------------------------------------------
Unit-Based Compensation
Non-cash unit-based compensation expense for the nine month period ended
Depletion, Depreciation and Accretion
Depletion, depreciation and accretion expense for the three months ended
For the three months ended
Depletion, Depreciation and Accretion Costs
-------------------------------------------------------------------------
Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Depletion and
Depreciation 19,193 29,446 72,500 97,890
Accretion 490 539 1,812 1,607
-------------------------------------------------------------------------
Total 19,683 29,985 74,312 99,497
-------------------------------------------------------------------------
Per unit ($/boe) 28.79 28.94 30.08 29.66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income Taxes
For the nine months ended
Future income taxes arise from differences between the accounting and tax bases of the Trust's assets and liabilities. For the nine months ended
As at
At
-------------------------------------------------------------------------
Operating
($000s) Trust subsidiaries Total
-------------------------------------------------------------------------
Intangible resource pools 15,105 246,222 261,327
Undepreciated capital cost - 100,434 100,434
Loss carryforwards (expire
through 2027) - 19,834 19,834
Unit issue costs 1,741 207 1,948
-------------------------------------------------------------------------
16,846 366,697 383,543
-------------------------------------------------------------------------
Following the Reorganization from a Trust to a corporation, Bellaxtrix is
expected to have approximately $382 million in tax pools for deduction against
future income. As a result of the Reorganization, $1.7 million of tax pools
related to unit issue costs were eliminated.
Net Loss, Cash Flow from Operating Activities and Funds Flow from
Operations
As detailed previously in this Management's Discussion and Analysis, funds
flow from operations is a term that does not have any standardized meaning
under GAAP. Funds flow from operations is calculated as cash flow from
operating activities before asset retirement costs incurred and changes in
non-cash working capital incurred.
Reconciliation of Cash Flow from Operating Activities and Funds Flow from
Operations
-------------------------------------------------------------------------
Three months ended Nine months ended
($000s, except September 30, September 30,
per unit amounts) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash flow from operating
activities 12,150 29,406 27,928 67,141
Asset retirement costs
incurred 218 893 1,269 1,605
Change in non-cash
working capital (1,278) (8,808) (853) 3,282
-------------------------------------------------------------------------
Funds flow from
operations 11,090 21,491 28,344 72,028
-------------------------------------------------------------------------
True's cash flow from operating activities of
True maintains a commodity price risk management program to provide a measure of stability to cash flow from operating activities and funds flow from operations. Unrealized mark-to-market gains or losses are non-cash adjustments to the current fair market value of the contract over its entire term and are included in the calculation of net loss.
True generated a net loss of
Cash Flow from Operating Activities, Funds Flow from Operations and Net
Income (Loss)
-------------------------------------------------------------------------
Three months ended Nine months ended
($000s, except September 30, September 30,
per unit amounts) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash flow from
operating activities 12,150 29,406 27,928 67,141
Basic ($/unit) 0.15 0.37 0.36 0.85
Diluted ($/unit) 0.15 0.37 0.36 0.85
Funds flow from
operations 11,090 21,491 28,344 72,028
Basic ($/unit) 0.14 0.27 0.36 0.91
Diluted ($/unit) 0.14 0.27 0.36 0.91
Net income (loss) (9,633) 29,939 (118,878) (10,056)
Basic ($/unit) (0.12) 0.38 (1.51) (0.13)
Diluted ($/unit) (0.12) 0.38 (1.51) (0.13)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital Expenditures
True planned for a very modest capital program for the first three
quarters of 2009. Third quarter 2009 capital spending was $2.7 million, as
compared to $13.8 million for the same period in 2008.
Capital Expenditures
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
-------------------------------------------------------------------------
Lease acquisitions
and retention 170 136 478 1,101
Geological and geophysical 80 322 131 334
Drilling and completion
costs 1,570 5,696 3,017 15,200
Facilities and equipment 862 7,943 2,612 9,569
-------------------------------------------------------------------------
Exploration and
development(1) 2,682 14,097 6,238 26,204
Corporate and
property acquisitions 28 (286) 379 337
-------------------------------------------------------------------------
Total capital
expenditures - cash 2,710 13,811 6,617 26,541
Property dispositions
- cash (84,696) (32) (92,977) (44,350)
-------------------------------------------------------------------------
Total net capital
expenditures - cash (81,986) 13,779 (86,360) (17,809)
-------------------------------------------------------------------------
Other - non-cash(2) 178 (144) (1,043) (2,858)
-------------------------------------------------------------------------
Total net capital
expenditures(1) (81,808) 13,635 (87,403) (20,667)
-------------------------------------------------------------------------
(1) Excludes capitalized costs related to asset retirement obligation
expenditures incurred during the year.
(2) Other includes non-cash adjustments for current period's asset
retirement obligations and unit based compensation capitalized.
The
Based on the current economic conditions and Bellatrix's operating forecast for the remainder of 2009, the Company has updated its budgeted 2009 capital program to
During the third quarter of 2009, True drilled, completed and placed on production 1 (1.0 net) well at Willesden Green in West Central Alberta. Bellatrix's drilling program for the fourth quarter is in progress with 7(6.5 net) wells currently drilled, consisting of 1 (0.5 net) Pembina Alberta Cardium oil well, 2 (2.0 net) Mantario Saskatchewan oil wells, and 4 (4.0 net) Irvine Alberta natural gas wells. We plan to drill a further 4 (3.35 net) wells for the balance of 2009 concentrating on the Ferrier and Pembina areas. The Alberta wells drilled by Bellatrix take advantage of the Alberta Government Royalty incentive program.
Land
True's net mineral leases in Alberta, British Columbia and Saskatchewan as of
Ceiling Test
The Trust calculates a ceiling test quarterly and annually to place a limit on the aggregate carrying value of its capitalized costs, which may be amortized against revenues of future periods. The ceiling test is performed in accordance with the requirements of the Canadian Institute of Chartered Accountants ("CICA") AcG-16 "Oil and Gas Accounting - Full Cost", a two step process.
The Trust performed a ceiling test calculation at
The ceiling test calculation is updated in 2009 on a quarterly and annual basis based upon the latest available data, including but not limited to an updated annual external reserve engineering report which incorporates a full evaluation of reserves or internal reserve updates at quarterly periods, and the latest commodity pricing deck. Estimating reserves is very complex, requiring many judgments based on available geological, geophysical, engineering and economic data. Changes in these judgments could have a material impact on the estimated reserves. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available and as the economic environment changes.
Asset Retirement Obligations
As at
Distributions
For the nine months ended September 30, 2009 Trust declared distributions
as follows:
-------------------------------------------------------------------------
($000s, except per unit amount) Distribution
Nine months ended September 30, 2009 Per Unit Total
-------------------------------------------------------------------------
Distributions declared $0.02 $1,570
-------------------------------------------------------------------------
Distribution Paid History(1)
Distributions comprise a taxable portion and a return of capital portion
(tax deferred). The return of capital component reduces the cost basis of the
trust units held, as described below. For additional information, please see
our website at www.bellatrixexploration.com
-------------------------------------------------------------------------
Distributions Taxable Return of
Calendar Year per unit Portion Capital
-------------------------------------------------------------------------
2005 (two months)(2) $ 0.480 $ 0.456 $ 0.024
2006 $ 2.640 $ 2.033 $ 0.607
-------------------------------------------------------------------------
Cumulative to Dec. 31, 2006 $ 3.120 $ 2.489 $ 0.631
-------------------------------------------------------------------------
2007 year $ 0.960 $ 0.960 -
-------------------------------------------------------------------------
Cumulative to Dec. 31, 2007 $ 4.080 $ 3.449 $ 0.631
-------------------------------------------------------------------------
2008 year $ 0.460 $ 0.460 -
-------------------------------------------------------------------------
Cumulative to December 31, 2008 $ 4.540 $ 3.909 $ 0.631
-------------------------------------------------------------------------
2009 year to date (one month)(3) $ 0.020
-----------------------------------------------
Cumulative to September 30, 2009 $ 4.560
-----------------------------------------------
(1) Applies to unitholders who are residents of Canada and hold their
trust units as capital property.
(2) Based upon the distributions paid in the 2005 calendar year, after
the November 2, 2005 Arrangement with TKE Energy Trust.
(3) It is currently estimated that the approximate taxable portion of the
January 2009 distribution to Canadian unitholders will be 100%.
In consultation with its U.S. tax advisors, True believes that its
Trust units should be "qualified dividends" for U.S. federal
purposes. As such, the portion of distributions made during 2009 that
are considered dividends for U.S. federal purposes should qualify for
the reduced rate of tax applicable to long-term capital gains.
Unitholders or potential unitholders should consult their own legal
or tax advisors as to their particular income tax consequences of
holding True units. Please review our February 19, 2009 press release
addressing this.
Monthly Distributions
Actual distributions paid and declared per Trust unit along with relevant
payment dates for 2009 to date are as follows:
-------------------------------------------------------------------------
Distribution
Ex-distribution Date Record Date Payment Date per unit
-------------------------------------------------------------------------
December 29, 2008 December 31, 2008 January 15, 2009 0.02
January 28, 2009 January 30, 2009 February 17, 2009 0.02
-------------------------------------------------------------------------
During the first nine months of 2009, funding requirements for distributions declared was 1% of funds flow from operations.
As announced on
Subsequent to the Reorganization from a trust structure to corporate structure, it is currently not anticipated that Bellatrix will pay dividends to common shareholders.
Foreign Ownership Update
Based on information from Trust records and information provided by intermediaries holding Trust units for others, the Trust estimates that, as of
Liquidity and Capital Resources
As an oil and gas business, Bellatrix has a declining asset base and therefore relies on ongoing development and acquisitions to replace production and add additional reserves. Future oil and natural gas production and reserves are highly dependent on the success of exploiting the Trust's existing asset base and in acquiring additional reserves. To the extent Bellatrix is successful or unsuccessful in these activities; cash flow could be increased or reduced.
Global financial markets continued to remain fragile during the first nine months of 2009. The economic crisis continues to put a strain on credit and equity markets as characterized by a decline in liquidity and higher borrowing costs. Access to capital markets has become constrained and significantly more expensive for the Trust along with other oil and gas entities. The current global economic environment has continued to create volatility in commodity prices, tempered somewhat by the growing Canadian to US dollar exchange rate. Given the continuing uncertain economic conditions, Bellatrix has maintained a modest 2009 capital program, although it was recently increased to
Liquidity risk is the risk that Bellatrix will not be able to meet its financial obligations as they fall due. Bellatrix actively manages its liquidity through daily and longer-term cash, debt and equity management strategies. Such strategies encompass, among other factors: having adequate sources of financing available through its bank credit facilities, estimating future cash generated from operations based on reasonable production and pricing assumptions, analysis of economic hedging opportunities, and maintaining sufficient cash flows for compliance with debt covenants. Bellatrix is fully compliant with all of its debt covenants.
Bellatrix generally relies on operating cash flows and its credit facilities to fund capital requirements and provide liquidity. Future liquidity depends primarily on cash flow generated from operations, existing credit facilities and the ability to access debt and equity markets. From time to time, the Company accesses capital markets to meet its additional financing needs and to maintain flexibility in funding its capital programs. There can be no assurance that debt or equity financing, or cash generated by operations will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on terms acceptable to Bellatrix. The inability of Bellatrix to access sufficient capital for its operations could have a material adverse effect on Bellatrix's business financial condition, results of operations and prospects.
Credit risk is the risk of financial loss to Bellatrix if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from Bellatrix's trade receivables from joint venture partners, petroleum and natural gas marketers, and financial derivative counterparties.
A substantial portion of Bellatrix's accounts receivable are with customers and joint interest partners in the petroleum and natural gas industry and are subject to normal industry credit risks. Bellatrix sells substantially all of its production to eight primary purchasers under standard industry sale and payment terms. Purchasers of Bellatrix's natural gas, crude oil and natural gas liquids are subject to a periodic internal credit review to minimize the risk of non-payment. Bellatrix has continued to closely monitor and reassess the creditworthiness of its counterparties, including financial institutions. This has resulted in Bellatrix reducing or mitigating its exposures to certain counterparties where it is deemed warranted and permitted under contractual terms.
Bellatrix may be exposed to third party credit risk through its contractual arrangements with its current or future joint venture partners, marketers of its petroleum and natural gas production and other parties. In the event such entities fail to meet their contractual obligations to Bellatrix, such failures may have a material adverse effect on the Trust's business, financial condition, results of operations and prospects. In addition, poor credit conditions in the industry and of joint venture partners may impact a joint venture partner's willingness to participate in Bellatrix's ongoing capital program, potentially delaying the program and the results of such program until Bellatrix finds a suitable alternative partner.
During 2009, the Trust has been executing several strategies for dealing with these uncertain times.
Bellatrix's corporate thrust in 2009 has been to continue to improve Bellatrix's balance sheet by reducing total outstanding debt and streamlining its operating cost structure. In 2009, Bellatrix has limited its capital program to
On
On
On
The strategic dispositions accomplished in the year allow the Company to progress forward with substantially improved financial flexibility.
Combined funding requirements for the January distribution declared and True's capital expenditures represented 24% and 29% of funds flow from operations in the three and nine months ended
As a result of the continued deterioration in economic conditions, including the significant decline in crude oil prices seen earlier in 2009, a weakening outlook for natural gas demand and a heightened risk in the credit markets, True deemed it prudent to suspend distributions in
True continues to tighten its cost structure in the current economically challenging climate with forecasted cuts from 2008 levels of 30% to total operating expenses which includes G&A and lease operating costs in 2009. The results year to date are on track.
For the nine month period ended
As an added layer of protection of its cash flow forecast, upon completion of the divestitures, Bellatrix's hedging represents approximately 58% of its natural gas production for Q4 2009 that is forward sold at an average price of
Pursuant to True's existing credit facility, the Trust was only permitted to receive amounts from True Energy and its subsidiaries for the sole purpose of permitting the Trust to pay: (i) distributions by True Energy to the Trust to permit the regular semi-annual interest payments by the Trust on
There are currently no commitments, other than those associated with the Bellatrix's credit facilities outlined above, its 2009 capital program of
On
As at
Commitments
As at
The following are the contractual maturities of financial liabilities as at September 30, 2009:
-------------------------------------------------------------------------
Financial liability (less than)
($000s) 1 Year 1-2 Years 2-5 Years Thereafter
-------------------------------------------------------------------------
Accounts payable and
accrued liabilities(1) 17,500 - - -
Commodity contract
liability 111
Bank debt - principal(2) - 26,485 - -
Convertible debentures
- principal - 86,250
Convertible debentures
- interest(3) 4,839 6,469 - -
-------------------------------------------------------------------------
Total 22,450 119,204 - -
-------------------------------------------------------------------------
(1) As at September 30, 2009, $1.6 million of accrued coupon interest
payable in relation to the convertible debentures is included in
Accounts Payable and Accrued Liabilities.
(2) Bank debt is based on a revolving term which is reviewed at least
annually and converts to a 366 day non-revolving facility if not
renewed after the last day of the revolving period of June 29, 2010.
(3) Convertible debentures outstanding at September 30, 2009 bear
interest at a coupon rate of 7.5%, which currently requires total
annual interest payments of $6.5 million.
Interest due on the bank credit facility is calculated based upon floating rates.
Off-Balance Sheet Arrangements
The Trust has certain lease agreements, including primarily fixed term office space leases, which were entered into in the normal course of operations. All leases have been treated as operating leases whereby the lease payments are included in operating expenses or G&A expenses depending on the nature of the lease. The lease agreements do not currently provide for early termination. No asset or liability value has been assigned to these leases in the balance sheet as of
Business Prospects and 2009 and 2010 Year Outlook
As of
Bellatrix has approximately 268,000 net acres of undeveloped land with in excess of 300 exploitation drilling opportunities identified representing over 5 years of drilling inventory.
Bellatrix continues to monitor its cost structure in the current economically challenging climate and as a result, completed G&A reductions in
As an added layer of protection of its cash flows, upon completion of divestitures, Bellatrix's hedging represents approximately 58% of its estimated natural gas production for the fourth quarter of 2009 that is forward sold at an average price of
Bellatrix's 2010 capital program is currently not expected to exceed
On
On
Financial Reporting Update
Goodwill and intangible assets
In
International Financial Reporting Standards ("IFRS")
On
An internal project team has been set up to manage this transition and to ensure successful implementation within the required time frame. Current economic conditions may require re-allocation of resources available for the IFRS conversion project.
The Company has completed a high level analysis to determine the areas impacted by the conversion and is assessing the financial reporting impacts on the adoption of IFRS. The assessment provided insight as to the most significant areas of GAAP differences applicable to Bellatrix and include treatment of exploration and evaluation costs, depreciation and depletion of property, plant and equipment, and impairment of assets, as well as more extensive presentation and disclosure requirements under IFRS. During the nine months ended
On
We will continue to monitor standards development as issued by the International Accounting Standards Board and the AcSB, as well as regulatory developments as issued by the Canadian Securities Administrators (CSA), which may affect the timing, nature or disclosure of our adoption of IFRS.
Business Risks and Uncertainties
The reader is advised that Bellatrix continues to be subject to various types of business risks and uncertainties as described in the Trust's Management, Discussion and Analysis for the year ended
Critical Accounting Estimates
The reader is advised that the critical accounting estimates, policies, and practices as described in the Trust's Management's Discussion and Analysis for the year ended
Legal, Environmental Remediation and Other Contingent Matters
The Trust reviews legal, environmental remediation and other contingent matters to both determine whether a loss is probable based on judgment and interpretation of laws and regulations and determine that the loss can reasonably be estimated. When the loss is determined, it is charged to earnings. The Company's management monitor known and potential contingent matters and make appropriate provisions by charges to earnings when warranted by the circumstances.
Controls and Procedures
Disclosure Controls and Procedures
The Trust's Chief Executive Officer and Chief Financial Officer designed, or caused to be designed under their supervision, disclosure controls and procedures to provide reasonable assurance that: (i) material information relating to the Trust is made known to the Trust's Chief Executive Officer and Chief Financial Officer by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Trust in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation.
Internal Control over Financial Reporting
The Trust's Chief Executive Officer and Chief Financial Officer designed, or caused to be designed under their supervision, internal control over financial reporting to provide reasonable assurance regarding the reliability of the Trust's financial reporting and the preparation of financial statements for external purposes in accordance with the Canadian GAAP.
Bellatrix is required to disclose herein any change in the Trust's internal control over financial reporting that occurred during the period beginning on
It should be noted that a control system, including the Trust'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.
Standardized Distributable Cash
The Canadian Securities Administrators revised and re-issued in
-------------------------------------------------------------------------
Three months ended Nine months ended
($000s, except per unit September 30, September 30,
amounts and ratios) 2009 2008 2009 2008
-------------------------------------------------------------------------
Net income (loss) (9,633) 29,939 (118,404) (10,056)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow from
operating activities 12,150 29,406 27,928 67,141
Productive capacity
maintenance(1) (2,682) (14,097) (6,238) (26,204)
-------------------------------------------------------------------------
Standardized
distributable cash 9,468 15,309 21,690 40,937
Proceeds on sale of
property, plant and
equipment 84,696 32 92,977 44,350
Corporate and property
acquisition and other
capital expenditures (28) 286 (379) (337)
Repurchase of trust
units under normal
course issuer bid - (944) - (1,540)
Bank borrowings (debt
repayment) and working
capital changes and
other (94,136) (5,209) (112,718) (54,924)
-------------------------------------------------------------------------
Cash Distributions
declared - 9,474 1,570 28,486
Accumulated
distributions,
beginning of period 253,071 234,179 251,501 215,167
-------------------------------------------------------------------------
Accumulated
distributions, end of
period 253,071 243,653 253,071 243,653
-------------------------------------------------------------------------
Standardized
distributable cash
per unit - basic $0.12 $0.19 $0.28 $0.52
Standardized
distributable cash
per unit - diluted $0.12 $0.19 $0.28 $0.52
-------------------------------------------------------------------------
Standardized
distributable cash
payout ratio(2) N/A 0.62 0.07 0.70
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Distributions declared
per unit for
outstanding units in
the period - 0.12 $0.02 0.36
Accumulated
distributions per unit,
beginning of period 4.56 4.32 4.54 4.08
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
distributions per unit,
end of period $4.56 4.44 $4.56 4.44
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Excess (shortfall) of
net income over cash
distributions declared (9,633) 20,465 (119,974) (38,542)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Excess of cash flow from
operating activities
over cash distributions
declared 12,150 19,932 26,358 38,655
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Please refer to the discussion of productive capacity maintenance
below
(2) Represents cash distributions declared divided by standardized
distributable cash
While a Trust, True attempted to fund both distributions (if any) and maintenance capital primarily from funds flow from operations.
Productive capacity is the amount of capital funds required in a period for an enterprise to maintain its ability to generate future cash flow from operating activities at a constant level. As commodity prices can be volatile and short-term variations in production levels are often experienced in the oil and gas industry, True defined production capacity as production on a barrel of oil equivalent basis. A quantifiable measure for these short-term variations is not objectively determinable or verifiable due to various factors including the inability to distinguish natural production declines from the effect of production additions resulting from capital and optimization programs, and the effect of temporary production interruptions. As a result, the adjustment for productive capacity maintenance in True's calculation of standardized distributable cash is True's capital expenditures excluding the cost of any asset acquisition, corporate asset acquisitions or proceeds of any asset disposition. True believed that its capital programs based on 40% to 60% of forecasted funds flow including its view of True's assets and opportunities and True's outlook for commodity prices and industry conditions in the medium term, should have been sufficient to maintain True's productive capacity in the medium term. True set its hurdle rates for evaluating potential development and optimization projects according to these parameters. Due to the risks inherent in the oil and natural gas industry, particularly True's exploration and development activities and inherent variations in commodity prices, there could be no assurance that capital programs, whether limited to excess of cash flow over distributions or not, will be sufficient to maintain or increase True's production levels or cash flow from operating activities. True's capital expenditures and production could have been impacted by the timing of the capital program and spring break up associated with certain operating areas of its properties. As True attempted to maintain sufficient credit facilities and appropriate levels of bank debt, this seasonality was not expected to influence True's distribution policies.
True's calculation of standardized distributable cash has no adjustment for long-term unfunded contractual obligations. True's only material long-term unfunded contractual obligation at this time was for asset retirement obligations. True's abandonment obligations were being funded on an annual basis with cash flow from operating activities. Cash flow from operating activities, used in our standardized distributable cash calculation, includes a deduction for abandonment expenditures incurred in the year. True regularly monitored its current forecast debt levels to ensure debt covenants are not exceeded.
Distributions, if paid, typically exceeded net income as a result of non-cash items such as unit-based compensation, depletion, depreciation and accretion, unrealized loss (gain) on commodity contracts, and future income tax expense (recovery). These non-cash items generally result in a reduction to net income, with no impact to cash flow from operating activities. Therefore, distributions, if paid, exceeded net income in most periods. In the event distributions exceeded cash flow from operating activities and the requirements of True's capital program, the shortfall was typically funded by a combination of available bank facilities, equity or debt issues, or the sale proceeds from non-core assets.
The Board of Directors and management regularly reviewed the level of distributions. The board considered a number of factors, including expectations of future current commodity prices, hedge positions, production volumes, capital expenditure requirements, market conditions, the availability of debt and equity capital and other factors. As announced on
Following the Reorganization effective
-------------------------------------------------------------------------
($000s, except ratios) To September 30, 2009
-------------------------------------------------------------------------
Cumulative distributable cash from operations (1) 88,122
Proceeds on sale of property, plant and equipment 193,639
Corporate and property acquisitions and other
capital expenditures (26,564)
Net proceeds from issue of trust units 54,375
Proceeds from issue of convertible debentures, net of
issue costs 82,261
Repurchase of trust units under normal course issuer bid (4,194)
Funding from DRIP 42,909
Bank borrowings (debt repayment) and working capital
changes and other (177,477)
-------------------------------------------------------------------------
Cumulative cash distributions declared (1) 253,071
-------------------------------------------------------------------------
Standardized distributable cash payout ratio (2) 2.87
-------------------------------------------------------------------------
(1) Subsequent to the November 2, 2005 reverse takeover of TKE Energy
Trust
(2) Represents cumulative distributions declared divided by cumulative
standardized distributable cash
Sensitivity Analysis
The table below shows sensitivities to funds flow as a result of product price and operational changes. This is based on actual average prices received for the third quarter of 2009 and average production volumes of 7,432 boe/d during that period, as well as the same level of debt outstanding at
-------------------------------------------------------------------------
Funds Flow
Funds Flow from
from Operations
Operations Per Diluted
(annualized) Unit
-------------------------------------------------------------------------
Sensitivity Analysis ($000s) ($)
-------------------------------------------------------------------------
Change of US $1/bbl WTI 748 0.01
Change of $0.10/ mcf 1,078 0.01
Change of US $0.01 Cdn/ US exchange rate 429 0.01
Change in prime of 1% 265 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Selected Quarterly Consolidated Information
The following table sets forth selected consolidated financial information of the Trust for the most recently completed quarters ending at
-------------------------------------------------------------------------
2009 - Quarter ended
(unaudited) ($000s,
except per unit
amounts) March 31 June 30 Sept. 30
-------------------------------------------------------------------------
Revenues before
royalties and hedging 31,345 29,805 23,860
Cash flow from
operating activities 9,311 6,467 12,150
Cash flow from
operating activities
per unit
Basic and Diluted $0.12 $0.08 $0.15
Funds flow from
operations(1) 6,489 10,765 11,090
Funds flow from
operations per unit(1)
Basic and Diluted $0.08 $0.14 $0.14
Net income (loss) (9,056) (99,715) (9,363)
Net income (loss)
per unit
Basic and Diluted $(0.12) $(1.27) $(0.12)
Net capital
expenditures (cash) 2,764 (7,138) (81,986)
Distributions declared 1,570 - -
Distributions per unit $0.02 - -
-------------------------------------------------------------------------
2008 - Quarter ended
(unaudited) ($000s,
except per unit
amounts) March 31 June 30 Sept. 30 Dec. 31
-------------------------------------------------------------------------
Revenues before
royalties and hedging 70,033 82,074 72,225 41,053
Cash flow from
operating activities 17,843 19,892 29,406 11,643
Cash flow from
operating activities
per unit
Basic and Diluted $0.23 $0.25 $0.37 $0.15
Funds flow from
operations(1) 24,233 26,304 21,491 5,865
Funds flow from
operations per unit(1)
Basic and Diluted $0.31 $0.33 $0.27 $0.07
Net income (loss) (18,621) (21,374) 29,939 (9,534)
Net income (loss) per
unit
Basic and Diluted $(0.24) $(0.27) $0.38 $(0.12)
Net capital expenditures
(cash) 2,862 (34,450) 13,779 16,471
Distributions declared 9,507 9,505 9,474 7,848
Distributions per unit $0.12 $0.12 $0.12 $0.10
-------------------------------------------------------------------------
2007 - Quarter ended
(unaudited) ($000s,
except per unit
amounts) March 31 June 30 Sept. 30 Dec. 31
-------------------------------------------------------------------------
Revenues before
royalties and hedging 71,196 74,991 50,547 61,756
Cash flow from
operating activities
Cash flow from
operating activities
per unit 39,959 4,402 14,848 22,392
Basic $0.57 $0.06 $0.19 $0.28
Diluted $0.55 $0.08 $0.19 $0.28
Funds flow from
operations(1) 29,988 34,192 17,478 19,514
Funds flow from
operations per unit(1)
Basic $0.43 $0.47 $0.22 $0.25
Diluted $0.42 $0.45 $0.22 $0.25
Net income (loss) (8,571) 1,741 (17,003) (434)
Net income (loss) per
unit
Basic and Diluted $(0.12) $0.02 $(0.21) $(0.01)
Net capital
expenditures (cash) 27,915 6,739 7,562 14,828
Distributions declared 16,866 18,376 19,132 19,077
Distributions per unit $0.24 $0.24 $0.24 $0.24
-------------------------------------------------------------------------
(1) Refer to "Non-GAAP Measures" in respect of the term "funds flow from
operations" and "funds flow from operations per unit".
TRUE ENERGY TRUST
CONSOLIDATED BALANCE SHEETS
As at September 30 and December 31 (unaudited)
-------------------------------------------------------------------------
($000s) 2009 2008
-------------------------------------------------------------------------
ASSETS
Current assets
Accounts receivable $ 16,675 $ 28,119
Marketable securities (note 4) - 120
Deposits and prepaid expenses 5,526 5,969
Commodity contract asset (note 15) 5,126 3,726
--------------------------
27,327 37,934
Property, plant and equipment (note 5) 415,788 698,183
--------------------------
Total assets $ 443,115 $ 736,117
--------------------------
--------------------------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 17,500 $ 34,128
Distribution payable to unitholders - 1,570
Commodity contract liability (note 15) 111 -
Future income taxes (note 13) 1,473 1,100
--------------------------
19,084 36,798
Long-term debt (note 6) 26,485 132,388
Convertible debentures (note 7) 82,549 81,124
Asset retirement obligations (note 8) 24,776 33,682
Future income taxes (note 13) 967 42,777
--------------------------
Total liabilities 153,861 326,769
--------------------------
NON-CONTROLLING INTEREST
Exchangeable shares of subsidiary (note 9) 2,413 2,887
UNITHOLDERS' EQUITY
Unitholders' capital (note 10) 917,012 917,012
Equity component of convertible debentures 5,119 5,119
Contributed surplus (note 11) 27,974 28,240
Accumulated other comprehensive income - (620)
Deficit (663,264) (543,290)
--------------------------
(663,264) (543,290)
--------------------------
--------------------------
Total unitholders' equity 286,841 406,461
--------------------------
Total liabilities and unitholders' equity $ 443,115 $ 736,117
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying selected notes to the consolidated financial statements.
TRUE ENERGY TRUST
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
For the three and nine months ended September 30 (unaudited)
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
-------------------------------------------------------------------------
REVENUES
Petroleum and
natural gas sales $ 23,860 $ 72,225 $ 85,010 $ 224,332
Royalties (2,570) (13,799) (14,202) (45,588)
Gain (loss) on
commodity contracts
(note 15) 1,721 38,080 15,281 (21,918)
----------------------------------------------------
23,011 96,506 86,089 156,826
EXPENSES
Production 9,089 15,494 34,951 48,660
Transportation 340 2,534 3,170 5,855
General and
administrative 3,244 3,610 8,667 11,872
Interest and
financing charges 3,573 3,318 11,093 11,321
Unit-based
compensation
(recovery) (notes
10 and 11) (3) 660 (363) 1,089
Depletion,
depreciation and
accretion 19,683 29,985 74,312 99,497
Loss on sale of
marketable
securities (note 4) - - 501 -
Loss on petroleum
and natural gas
properties sold
(note 5) - - 114,182 -
----------------------------------------------------
35,926 55,601 246,513 178,294
INCOME (LOSS) BEFORE
TAXES (12,915) 40,905 (160,424) (21,468)
TAXES
Capital taxes - 588 - 1,702
Future income tax
recovery (note 13) (3,243) 10,245 (41,546) (13,071)
----------------------------------------------------
(3,243) 10,833 (41,546) (11,369)
NET INCOME (LOSS)
BEFORE NON-CONTROLLING
INTEREST (9,672) 30,072 (118,878) (10,099)
Non-controlling
interest (39) 133 (474) (43)
----------------------------------------------------
NET INCOME (LOSS) (9,633) 29,939 (118,404) (10,056)
Unrealized loss on
available for sale
marketable securities - (323) - (323)
Realized loss on
available for sale
marketable securities - - 620 -
----------------------------------------------------
COMPREHENSIVE INCOME
(LOSS) $ (9,633) $ 29,616 $ (117,784) $ (10,379)
----------------------------------------------------
Net income (loss) per
trust unit
Basic $ (0.12) $ 0.38 $ (1.51) $ (0.13)
Diluted $ (0.12) $ 0.38 $ (1.51) $ (0.13)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying selected notes to the consolidated financial statements.
TRUE ENERGY TRUST
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
For the three and nine months ended September 30 (unaudited)
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
-------------------------------------------------------------------------
UNITHOLDERS' CAPITAL
Balance, beginning
of period $ 917,012 $ 924,158 $ 917,012 $ 925,573
Repurchased under
normal course
issuer bid - (2,926) - (4,503)
Exchangeable shares
converted - 179 - 341
----------------------------------------------------
Balance, end of
period 917,012 921,411 917,012 921,411
----------------------------------------------------
EQUITY COMPONENT OF
CONVERTIBLE DEBENTURES
----------------------------------------------------
Balance, beginning
and end of period 5,119 5,119 5,119 5,119
----------------------------------------------------
CONTRIBUTED SURPLUS
Balance, beginning of
period 27,943 21,158 28,240 19,454
Unit-based
compensation expense
(note 10 and 11) 174 364 564 1,529
Incentive units
voluntarily
surrendered - 466 - 466
Adjustment of prior
period unit-based
compensation expense
for forfeitures of
unvested incentive
units (143) (148) (830) (590)
Adjustment for
repurchase of units
under normal course
Issuer bid - 1,982 - 2,963
----------------------------------------------------
Balance, end of
period 27,974 23,822 27,974 23,822
----------------------------------------------------
DEFICIT
Balance, beginning
of period (653,631) (546,373) (543,290) (487,366)
Net income (loss) (9,633) 29,939 (118,404) (10,056)
Distributions
declared - (9,474) (1,570) (28,486)
----------------------------------------------------
Balance, end of
period (663,264) (525,908) (663,264) (525,908)
----------------------------------------------------
ACCUMULATED OTHER
COMPREHENSIVE INCOME
Balance, beginning
of period - - (620) -
Unrealized loss on
available for sale
marketable
securities - (323) - (323)
Realized loss on sale
of marketable
securities (note 4) - - 620 -
----------------------------------------------------
Balance, end of period - (323) - (323)
----------------------------------------------------
-------------------------------------------------------------------------
TOTAL UNITHOLDERS'
EQUITY $ 286,841 $ 424,121 $ 286,841 $ 424,121
-------------------------------------------------------------------------
See accompanying selected notes to the consolidated financial statements.
TRUE ENERGY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and nine months ended September 30 (unaudited)
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by
(used in):
CASH FLOW FROM
OPERATING ACTIVITIES
Net income (loss) $ (9,633) $ 29,939 $ (118,404) $ (10,056)
Items not involving
cash:
Non-controlling
interest (note 9) (39) 133 (474) (43)
Depletion,
depreciation and
accretion 19,683 29,985 74,312 99,497
Unit-based
compensation
(recovery) (notes
10 and 11) (3) 660 (363) 1,089
Unrealized loss
(gain) on commodity
contracts (note 15) 3,851 (49,911) (1,289) (6,674)
Accretion on
convertible
debentures 474 440 1,425 1,286
Future income tax
recovery (note 13) (3,243) 10,245 (41,546) (13,071)
Loss on sale of
marketable
securities (note 4) - - 501 -
Loss on petroleum
and natural gas
properties sold
(note 5) - - 114,182 -
Asset retirement
costs incurred
(note 8) (218) (893) (1,269) (1,605)
Change in non-cash
working capital
(note 12) 1,278 8,808 853 (3,282)
----------------------------------------------------
12,150 29,406 27,928 67,141
CASH FLOW FROM (USED
IN) FINANCING
ACTIVITIES
Decrease in bank debt (93,720) (8,867) (105,903) (51,884)
Repurchase of trust
units under normal
course issuer bid - (944) - (1,540)
Distributions
declared - (9,474) (1,570) (28,486)
----------------------------------------------------
(93,720) (19,285) (107,473) (81,910)
Change in non-cash
working capital
(note 12) 861 (207) 52 (3,317)
----------------------------------------------------
(92,859) (19,492) (107,421) (85,227)
CASH FLOW FROM (USED
IN) INVESTING ACTIVITIES
Additions to property,
plant and equipment (2,710) (13,811) (6,617) (26,541)
Proceeds on sale of
property, plant and
equipment 84,696 32 92,977 44,350
Proceeds on sale of
marketable securities - - 349 -
----------------------------------------------------
81,986 (13,779) 86,709 17,809
Change in non-cash
working capital
(note 12) (1,277) 3,865 (7,216) 277
----------------------------------------------------
80,709 (9,914) 79,493 18,086
Change in cash - - - -
Cash, beginning of
period - - - -
-------------------------------------------------------------------------
Cash, end of period $ - $ - $ - $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying selected notes to the consolidated financial statements.
TRUE ENERGY TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
-------------------------------------------------------------------------
1. STRUCTURE OF THE TRUST
True Energy Trust ("True" or the "Trust") is an open-ended,
unincorporated investment trust governed by the laws of the Province
of Alberta. Pursuant to a Plan of Arrangement (the "TKE Arrangement")
that became effective on November 2, 2005, True Energy Inc. and TKE
Energy Trust ("TKE") entered into a business combination whereby True
Energy Inc. acquired TKE in a reverse takeover, thus creating True
Energy Trust and a publicly listed exploration focused company, Vero
Energy Inc.
The purpose of the Trust is to indirectly explore for, develop and
hold interests in petroleum and natural gas properties, through
investments in securities of subsidiaries and net profits interests
in oil and natural gas properties. The business of the Trust is
carried on by True Energy Inc. and its indirect wholly owned
subsidiary True Energy Peru S.A.C. The Trust owns, directly and
indirectly, 100% of the common shares, (excluding the exchangeable
shares - see note 9) of True Energy Inc. and True Energy Peru S.A.C.
The activities of True Energy Inc. are financed through interest
bearing notes from the Trust and third party debt.
On August 19, 2009, the Trust announced that its Board of Directors
had approved the conversion from a trust structure to a growth
oriented, public exploration and production company pursuant to the
terms of a plan of arrangement (the "Arrangement"). The
reorganization of the Trust under the Arrangement (the
"Reorganization") was approved by the Trust's securityholders at the
special meeting on October 28, 2009, and received customary court and
regulatory approvals. The Reorganization was completed with an
effective date of November 1, 2009 and the company now operates under
the name of Bellatrix Exploration Ltd. ("Bellatrix" or the
"Company"). Unitholders of the Trust received an equal number of
common shares of Bellatrix which holds the assets and liabilities
previously held, directly or indirectly, by the Trust. Exchangeable
shares of the Trust were exchanged for common shares of Bellatrix at
the current exchange ratio in effect on the effective date.
Strategically, the Arrangement has re-positioned the company,
allowing Bellatrix to move forward with a corporate organic growth
model and a strong balance sheet.
Pursuant to the Arrangement, the Unitholders' Capital of the Trust
Units as of the effective date of November 1, 2009 shall be reduced
by the amount of the deficit of the Trust on October 31, 2009.
The Reorganization will be accounted for on a continuity of interest
basis and accordingly, the consolidated financial statements for
periods prior to the effective date of the Reorganization will
reflect the financial position, results of operations and cash flows
as if the Company had always carried on the business formerly carried
on by the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements of the Trust have been
prepared by management in accordance with generally accepted
accounting policies in Canada. The unaudited interim consolidated
financial statements have been prepared following the same accounting
policies and methods of computation as the consolidated financial
statements for the fiscal year ended December 31, 2008, except as
described in note 3. The interim consolidated financial statement
note disclosures do not include all of those required by Canadian
generally accepted accounting principles ("GAAP") applicable for
annual financial statements. Accordingly, the interim consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto as at and for
the year ended December 31, 2008.
3. RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2009, the Trust adopted the following new
accounting standard:
Goodwill and intangible assets
The CICA issued a new accounting standard, Section 3064 - Goodwill
and Intangible Assets, which replaces Section 3062 - Goodwill and
Other Intangible Assets, and Section 3450 - Research and
Development costs. The new section establishes standards for the
recognition, measurement and disclosure of goodwill and intangible
assets. Application of the new section does not have any impact on
the Trust's financial statements.
International Financial Reporting Standards ("IFRS")
On February 13, 2008 the CICA Accounting Standards Board announced
that Canadian public reporting issuers will be required to report
under International Financial Reporting Standards ("IFRS"), which
will replace Canadian generally accepted accounting principles for
years beginning on or after January 1, 2011. Currently, we are
assessing the effects of adoption and developing a plan accordingly.
We will continue to monitor any changes in the adoption of IFRS and
will update plans as necessary.
4. MARKETABLE SECURITIES
The Trust's investment in Veraz Petroleum Ltd. was sold in May 2009
for proceeds of $0.3 million and a realized loss on sale of
$0.5 million that was recognized in the 2009 second quarter.
5. PROPERTY, PLANT AND EQUIPMENT
($000s)
---------------------------------------------------------------------
Accumulated
depletion
and Net book
September 30, 2009 Cost depreciation value
---------------------------------------------------------------------
Petroleum and natural gas
properties $ 939,224 $ 525,226 $ 413,998
Office furniture and equipment 3,994 2,204 1,790
---------------------------------------------------------------------
$ 943,218 $ 527,430 $ 415,788
---------------------------------------------------------------------
December 31, 2008
---------------------------------------------------------------------
Petroleum and natural gas
properties $ 1,375,331 $ 679,196 $ 696,135
Office furniture and equipment 3,955 1,907 2,048
---------------------------------------------------------------------
$ 1,379,286 $ 681,103 $ 698,183
---------------------------------------------------------------------
---------------------------------------------------------------------
The Trust has included $39.4 million (December 31, 2008:
$62.8 million) for future development costs and excluded
$22.6 million (December 31, 2008: $31.3 million) for undeveloped land
and $27.8 million (December 31, 2008: $42.5 million) for estimated
salvage from the depletion calculation during the three month period
ended September 30, 2009.
For the nine month period ended September 30, 2009, the Trust
capitalized $0.3 million of general and administrative expenses and
$0.1 million of unit-based compensation expense directly related to
exploration activities.
Petroleum and Natural Gas Properties Sold
On July 30, 2009, the Trust closed a divestiture for the majority of
its petroleum and natural gas properties in Saskatchewan (the
"Saskatchewan Divestiture") for net proceeds of approximately $85
million, net of closing adjustments and closing costs.
The disposition was accounted for in accordance with Accounting
Guideline 16 - "Oil and Gas Accounting - Full Cost". Under full cost
accounting, if crediting the proceeds from disposition to costs
results in a change of 20 percent or more to the depletion rate then
a gain or loss on disposition should be recognized. When a gain or
loss is to be recognized the total net book value of capitalized
costs should be allocated between the properties sold and the
properties retained. The assets sold were an allocation of the
Trust's historical full cost pool based on a pro-rata ratio of future
cash flows of proved reserves associated with the assets sold,
discounted at 10%, as compared to all oil and gas assets on June 30,
2009. In the second quarter of 2009, the Trust recorded a
$114.2 million loss on the assets sold for the excess of the
allocated net book value of the assets, compared to the total
estimated net proceeds, after purchase adjustments and closing costs,
of approximately $85 million.
6. Bank Debt
($000s)
---------------------------------------------------------------------
September 30, December 31,
2009 2008
---------------------------------------------------------------------
Operating facility $ 3,672 $ 7,388
Revolving term facility 22,813 125,000
---------------------------------------------------------------------
Balance, end of period $ 26,485 $ 132,388
---------------------------------------------------------------------
On August 17, 2009, True finalized new syndicated credit facilities
to replace its then existing bank facilities. The new facilities
consist of a $10 million demand operating facility provided by one
Canadian bank and a $75 million extendible revolving term credit
facility provided by one Canadian bank and one Canadian financial
institution. Amounts borrowed under the credit facilities bear
interest at a floating rate based on the applicable Canadian prime
rate, U.S. base rate or LIBOR rate, plus between 1.50% and 4.50%,
depending on the type of borrowing and the Trust's debt to cash flow
ratio. The credit facilities are guaranteed by the Trust and all
material subsidiaries by a $400 million debenture containing a first
ranking charge and security interest. True has provided a negative
pledge and undertaking to provide fixed charges over major petroleum
and natural gas reserves in certain circumstances. A standby fee is
charged of between 0.60% and 1.12% on the undrawn portion of the
credit facilities, depending on the Trust's debt to cash flow ratio,
The revolving period for the revolving term credit facility will end
on June 29, 2010, unless extended for a further 364-day period.
Should the facility not be extended it will convert to a
non-revolving term facility with the full amount outstanding due 366
days after the last day of the revolving period of June 29, 2010. The
borrowing base will be subject to re-determination on March 31, 2010.
Payment will not be required under the revolving term facility for
more than 365 days from September 30, 2009 and as there is sufficient
availability under the revolving term credit facility to also cover
the operating facility, the entire amounts owing on the credit
facilities have been classified as long-term.
Pursuant to True's credit facilities, the Trust was permitted to pay
the semi-annual interest payments on the Debentures, cash
distributions in connection with redemption of trust units and
payments by the Trust to unitholders and debenture holders in
relation to the normal course issuer bids approved by the TSX on
August 17, 2009 and monthly distributions to unitholders, provided
that distributions in a fiscal year did not exceed $10 million.
In connection with the Reorganization, Bellatrix confirmed its
$85 million facilities with existing lenders on November 1, 2009 on
substantially the same terms and conditions. The Company is fully
compliant with all of its debt covenants.
7. CONVERTIBLE DEBENTURES
The following table shows the convertible debenture activities for
the nine month period ended September 30, 2009 and the year ended
December 31, 2008:
---------------------------------------------------------------------
Debt Equity
Number of Component Component
Debentures ($000s) ($000s)
---------------------------------------------------------------------
Balance, December 31, 2007 86,250 $ 79,407 $ 5,119
Accretion - 1,717 -
---------------------------------------------------------------------
Balance, December 31, 2008 86,250 $ 81,124 $ 5,119
---------------------------------------------------------------------
Accretion - 1,425 -
---------------------------------------------------------------------
Balance, September 30, 2009 86,250 $ 82,549 $ 5,119
---------------------------------------------------------------------
In November 2008, the Trust received Toronto Stock Exchange approval
for its normal course issuer bid program ("NCIB") to repurchase up to
10% of the issued and outstanding 7.50% convertible unsecured
subordinated debentures of the Trust from December 1, 2008 to
November 30, 2009. As of September 30, 2009 there have been no
repurchases of convertible debentures under the NCIB. The 7.5%
debentures have a face value of $1,000 per debenture and have a
maturity date of June 2011. Pursuant to True's credit facility, the
Trust was permitted to repurchase debentures in relation to the
normal course issuer bids approved by the TSX on August 17, 2009.
In connection with the reorganization of the Trust effective
November 1, 2009, the convertible debentures have been assumed by
Bellatrix. Holders of the debentures will be entitled to receive
Bellatrix common shares, rather than Trust units, on conversion of
such debentures. On November 1, 2009, Bellatrix had a principal
amount of $85.68 million of convertible debentures outstanding.
8. ASSET RETIREMENT OBLIGATIONS
The Trust's asset retirement obligations result from net ownership
interests in petroleum and natural gas assets including well sites,
gathering systems and processing facilities. The Trust estimates the
total undiscounted amount of cash flows required to settle its asset
retirement obligations is approximately $62.4 million which will be
incurred between 2009 and 2053. A credit-adjusted risk-free rate of
8 percent and an inflation rate of 2.4 percent were used to calculate
the fair value of the asset retirement obligations.
---------------------------------------------------------------------
September 30, December 31,
($000s) 2009 2008
---------------------------------------------------------------------
Balance, beginning of period $ 33,682 $ 28,373
Liabilities incurred on development
activities 263 784
Changes in prior period estimates 1,213 8,302
Liabilities released on dispositions (10,925) (3,333)
Liabilities settled during the period (1,269) (2,603)
Accretion expense 1,812 2,159
---------------------------------------------------------------------
Balance, end of period $ 24,776 $ 33,682
---------------------------------------------------------------------
9. EXCHANGEABLE SHARES OF SUBSIDIARY / NON-CONTROLLING INTEREST
September 30, December 31,
2009 2008
Amount Amount
Number ($000s) Number ($000s)
---------------------------------------------------------------------
Balance, beginning of
period 294,026 $ 2,887 390,276 $ 3,922
Non-controlling
interest recovery - (474) - (83)
Exchanged for trust
units - - (96,250) (952)
---------------------------------------------------------------------
Balance, end of
period 294,026 $ 2,413 294,026 $ 2,887
---------------------------------------------------------------------
---------------------------------------------------------------------
The exchange ratio is calculated monthly based on the five day
weighted average trust unit trading price preceding the monthly
effective date. The exchangeable shares are not eligible for cash
distributions; however cash distributions will increase the exchange
ratio. As at September 30, 2009, the exchange ratio was 1.06272
(2008: 1.02179).
Effective November 1, 2009, the remaining exchangeable shares were
exchanged for 312,458 common shares of Bellatrix.
10. UNITHOLDERS' CAPITAL
a. Trust Units
---------------------------------------------------------------------
September 30, 2009 December 31, 2008
Amount Amount
Number ($000s) Number ($000s)
---------------------------------------------------------------------
Balance, beginning
of period 78,496,581 $ 917,012 79,216,046 $ 925,573
Repurchased under
normal course
issuer bid - - (814,300) (9,513)
Exchangeable shares
converted - - 94,835 952
---------------------------------------------------------------------
Balance, end of
period 78,496,581 $ 917,012 78,496,581 $ 917,012
---------------------------------------------------------------------
In August 2008, the Trust announced approval of the renewal of its
normal course issuer bid ("NCIB") program to repurchase up to
7.8 million of its outstanding trust units during the period
August 28, 2008 through August 27, 2009, subject to certain
restrictions. As of December 31, 2008, the Trust had purchased
615,100 trust units at a weighted average price of $2.74 per trust
unit under the NCIB renewed on August 28, 2008. No repurchases have
taken place in the nine month period ended September 30, 2009.
Pursuant to True's credit facilities, the Trust was permitted to
repurchase trust units in relation to the normal course issuer bids
approved by the TSX on August 17, 2009. The NCIB of trust units
expired effective August 27, 2009.
In connection with the Reorganization effective November 1, 2009, the
trust units of the Trust and the equivalent number of trust units for
exchangeable shares of the Trust, based on the current exchange
ratio, were exchanged for a total of 78,809,039 new common shares of
Bellatrix.
b. Trust Unit Incentive Plan
The following tables summarize information regarding trust unit
incentive rights for the nine month period ended September 30, 2009:
Unit Rights Continuity
---------------------------------------------------------------------
Weighted Average
Exercise Price(a) Number
---------------------------------------------------------------------
Balance, December 31, 2008 $ 3.97 2,700,500
Granted $ 1.43 2,866,800
Forfeited $ 4.24 (1,528,071)
---------------------------------------------------------------------
Balance, September 30, 2009 $ 2.11 4,039,229
---------------------------------------------------------------------
(a) Exercise prices reflect grant prices less reduction in exercise
prices.
As of September 30, 2009, a total of 7,880,905 unit incentive rights
were reserved, leaving an additional 3,841,676 available for future
grants.
Unit Rights Outstanding, September 30, 2009
---------------------------------------------------------------------
Outstanding Exercisable
Weighted
Average Exercise
Exercise Weighted Price
Price Average Net of
Exercise Price At Net Remaining At Price
Net of September of Price Contractual September Reduct-
Reductions 30, 2009 Reductions Life 30, 2009 ions
---------------------------------------------------------------------
$ 0.65 - $ 1.50 1,381,274 $ 1.13 4.5 - -
$ 1.64 - $ 2.47 2,046,624 $ 2.02 4.2 180,320 $ 2.47
$ 2.58 - $ 4.29 177,833 $ 3.62 3.6 60,499 $ 3.66
$ 4.23 - $ 5.57 433,498 $ 5.01 2.6 297,653 $ 5.02
---------------------------------------------------------------------
---------------------------------------------------------------------
$ 0.65 - $ 5.57 4,039,229 $ 2.11 4.1 538,472 $ 4.01
---------------------------------------------------------------------
---------------------------------------------------------------------
In connection with the Reorganization effective November 1, 2009, a
new option plan under Bellatrix was approved. As a result, the
existing 4,067,733 incentive unit rights as at November 1, 2009 were
exchanged for an equal number of new common share options of
Bellatrix with the same terms as to exercise price, vesting and
expiry dates.
c. Employee Trust Unit Savings Plan
Effective October 1, 2006, the Trust introduced an employee trust
unit savings plan for the benefit of all employees. Under the savings
plan, employees may elect to contribute up to 10 percent of their
salary and contributions are used to fund the acquisition of trust
units. The Trust matches employee contributions at a rate of $1.00
for each $1.00 contributed. Trust units are purchased in the open
market by the plan administrator, an investment firm, on behalf of
the participants in the plan. For the nine month period ended
September 30, 2009, the Trust matched $0.1 million (2008 - $0.2
million) under the plan. Effective for March 2009, the Trust
suspended matching contributions under the plan until further notice.
11. CONTRIBUTED SURPLUS
---------------------------------------------------------------------
September 30, December 31,
($000s) 2009 2008
---------------------------------------------------------------------
Balance, beginning of period $ 28,240 $ 19,454
Unit-based compensation expense 564 1,869
Incentive units voluntarily surrendered - 466
Adjustment of prior period unit-based
compensation expense for forfeitures of
unvested incentive units (830) (526)
Adjustment for repurchase of units under NCIB - 6,977
---------------------------------------------------------------------
Balance, end of period $ 27,974 $ 28,240
---------------------------------------------------------------------
---------------------------------------------------------------------
Unit-based Compensation Expense
During the nine months ended September 30, 2009, the Trust granted
2,866,800 unit incentive rights to employees, directors and officers.
Of the unit incentive rights granted during the period, 2,221,258
unit incentive rights have an exercise price that is higher than the
Trust's unit market price on the grant date. The unit incentive
rights for which the exercise price is higher than the Trust's unit
market price on the grant date have a weighted average fair value of
$0.2583 per unit and an average exercise price of $1.70. The
remaining unit incentive rights have a weighted average fair value of
$0.3962 per unit. During the nine month period ended September 30,
2009, the Trust recorded unit-based compensation of $0.6 million, of
which $0.1 million was capitalized to property, plant and equipment.
The fair values of all incentive rights granted are estimated on the
date of grant using the Black-Scholes option-pricing model. The
weighted average fair market value of incentive rights granted during
the nine month period ended September 30, 2009 and the assumptions
used in their determination are as noted below:
---------------------------------------------------------------------
2009
---------------------------------------------------------------------
Assumptions:
Risk free interest rate (%) 2-3
Expected life (years) 5
Expected volatility (%) 69-84
---------------------------------------------------------------------
Results:
Weighted average fair value of each incentive
right granted $ 0.2831
---------------------------------------------------------------------
---------------------------------------------------------------------
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash Interest and Taxes Paid
---------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
---------------------------------------------------------------------
Cash paid:
Interest $ 1,416 $ 1,406 $ 6,589 $ 9,491
Taxes (net of
refunds) $ 1 $ 811 $ (272) $ 1,342
---------------------------------------------------------------------
Change in Non-cash Working Capital
---------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
---------------------------------------------------------------------
Changes in non-cash
working capital items:
Accounts
receivable $ 6,112 $ 14,527 $ 11,444 $ 9,705
Deposits and
prepaid
expenses (1,181) (1,422) 443 (357)
Accounts payable
and accrued
liabilities (4,069) (626) (16,628) (12,488)
Distribution
payable to
unitholders - (13) (1,570) (3,182)
---------------------------------------------------------------------
$ 862 $ (12,466) $ (6,311) $ (6,322)
---------------------------------------------------------------------
Changes related to:
Operating
activities $ 1,278 $ 8,808 $ 853 $ (3,282)
Financing
activities 861 (207) 52 (3,317)
Investing
activities (1,277) 3,865 (7,216) 277
---------------------------------------------------------------------
---------------------------------------------------------------------
$ 862 $ 12,466 $ (6,311) $ (6,322)
---------------------------------------------------------------------
---------------------------------------------------------------------
13. INCOME TAXES
The Trust is a mutual fund trust as defined under the Income Tax Act
(Canada). All taxable income earned by the Trust has been allocated
to unitholders and such allocations are deducted for income tax
purposes.
As at September 30, 2009, the total "temporary difference" (tax basis
exceeds accounting basis) in the Trust is $9 million. As at September
30, 2009, the Trust's subsidiaries have a tax basis of approximately
$367 million that is available to shelter future taxable income.
Included in this tax basis are estimated non-capital loss carry
forwards of approximately $20 million that expire in years through
2027. In addition, the Trust itself has approximately $17 million of
tax basis.
Subsequent to the conversion from a Trust to a Corporation, Bellatrix
is expected to have approximately $382 million in tax pools that is
available to shelter future taxable income. As a result of the
conversion, approximately $1.7 million in tax pools related to unit
issue costs were eliminated.
14. PER TRUST UNIT AMOUNTS
---------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
---------------------------------------------------------------------
Basic trust units
outstanding 78,496,581 78,862,690 78,496,581 78,862,690
Dilutive effect of:
Trust unit
incentive rights
outstanding 4,039,229 2,539,166 4,039,229 2,539,166
Units issuable
for exchangeable
shares 312,467 340,642 312,467 340,642
Units issuable for
convertible
debentures 5,390,625 5,390,625 5,390,625 5,390,625
---------------------------------------------------------------------
Diluted trust units
outstanding 88,238,902 87,133,123 88,238,902 87,133,123
---------------------------------------------------------------------
Weighted average
trust units
outstanding 78,496,581 78,996,154 78,496,581 79,140,544
Dilutive effect of
exchangeable
shares, trust
unit incentive
plan and
convertible
debentures(1) - - - -
---------------------------------------------------------------------
Diluted weighted
average trust
units outstanding 78,496,581 78,996,154 78,496,581 79,140,544
---------------------------------------------------------------------
(1) A total of 4,039,229 (2008: 2,539,166) trust incentive units,
312,467 (2008: 340,642) exchangeable shares and 5,390,625 (2008:
5,390,625) trust units issuable pursuant to the conversion of
convertible debentures were excluded from the calculation for the
three and nine month period ended September 30, 2009 as they were
not dilutive.
15. FINANCIAL RISK MANAGEMENT
a. Credit risk
As at September 30, 2009, accounts receivable was comprised of and
estimated to be aged as follows:
---------------------------------------------------------------------
Not past due Past due
(less than (90 days
Aging ($000s) 90 days) or more) Total
---------------------------------------------------------------------
Trade accounts receivable 2,561 3,666 6,227
Accrued and other receivables 7,851 3,667 11,518
Less: allowance for doubtful
accounts - (1,070) (1,070)
---------------------------------------------------------------------
Total 10,412 6,263 16,675
---------------------------------------------------------------------
After considering September 30, 2009 trade accounts payable from the
same companies and cash receipts received subsequent to September 30,
2009, the Trust's trade receivables aged 90 or more days of
approximately $3.7 million, before the provision for doubtful
accounts, are reduced to a net balance of approximately $2.3 million.
b. Liquidity risk
The following are the contractual maturities of financial liabilities
as at September 30, 2009:
---------------------------------------------------------------------
Financial
liability (less than)
($000s) 1 Year 1-2 Years 2-5 Years Thereafter
---------------------------------------------------------------------
Accounts
payable
and accrued
liabilities(1) 17,500 - - -
Commodity
contract
liability 111
Bank debt -
principal(2) - 26,485 - -
Convertible
debentures-
principal - 86,250
Convertible
debentures-
interest(3) 4,839 6,469 - -
---------------------------------------------------------------------
Total 22,450 119,204 - -
---------------------------------------------------------------------
(1) As at September 30, 2009, $1.6 million of accrued coupon interest
payable in relation to the convertible debentures is included in
Accounts Payable and Accrued Liabilities.
(2) Bank debt is based on a revolving term which is reviewed at least
annually and converts to a 366 day non-revolving facility if not
renewed. Refer to note 6 for further details.
(3) Convertible debentures outstanding at September 30, 2009 bear
interest at a coupon rate of 7.5%, which currently requires total
annual interest payments of $6.5 million.
Interest due on the bank credit facility is calculated based upon
floating rates.
c. Commodity price risk
Commodity price risk is the risk that the fair value or future cash
flows will fluctuate as a result of changes in commodity prices.
Commodity prices for petroleum and natural gas are impacted by not
only the relationship between the Canadian and United States dollar,
as outlined above, but also world economic events that dictate the
levels of supply and demand.
The Trust utilizes both financial derivatives and physical delivery
sales contracts to manage commodity price risks. All such
transactions are conducted in accordance with the risk management
policy that has been approved by the Board of Directors.
The Trust's formal risk management policy permits management to use
specified price risk management strategies including fixed price
contracts, costless collars and the purchase of floor price options,
other derivative financial instruments, and physical delivery sales
contracts to reduce the impact of price volatility and ensure minimum
prices for a maximum of eighteen months beyond the current date. The
program is designed to provide price protection on a portion of the
Trust's future production in the event of adverse commodity price
movement, while retaining significant exposure to upside price
movements. By doing this, the Trust seeks to provide a measure of
stability to funds flows from operations, as well as, to ensure True
realizes positive economic returns from its capital developments and
acquisition activities.
As at September 30, 2009, the Trust had entered into commodity price
risk management arrangements as follows:
---------------------------------------------------------------------
Price Price
Type Period Volume Floor Ceiling Index
---------------------------------------------------------------------
Natural
Gas March 1, 2009
fixed to Dec. 31, 2009 5,000 GJ/day $ 5.90 CDN $ 5.90 CDN AECO
Natural
Gas Oct. 1, 2009
fixed to Dec. 31, 2009 5,000 GJ/day $ 8.09 CDN $ 8.09 CDN AECO
Natural
Gas Oct. 1, 2009
fixed to Dec. 31, 2009 5,000 GJ/day $ 6.26 CDN $ 6.26 CDN AECO
Natural
Gas Jan. 1, 2010
fixed to March 31, 2010 5,000 GJ/day $ 7.16 CDN $ 7.16 CDN AECO
Natural
Gas Jan. 1, 2010
fixed to March 31, 2010 5,000 GJ/day $ 8.00 CDN $ 8.00 CDN AECO
Natural
Gas
call Jan. 1, 2010
option to Dec. 31, 2010 5,000 GJ/day - $ 8.05 CDN AECO
Natural
Gas April 1, 2010
fixed to June 30, 2010 5,000 GJ/day $ 6.59 CDN $ 6.59 CDN AECO
Oil March 1, 2009
collar to Dec. 31, 2009 500 bbl/d $52.30 CDN $80.70 CDN WTI
---------------------------------------------------------------------
The fair value of commodity risk management contracts as at
September 30, 2009 is a net asset of $5.0 million.
Subsequent to September 30, 2009, the Trust entered into commodity
price risk management arrangements as follows:
---------------------------------------------------------------------
Price Price
Type Period Volume Floor Ceiling Index
---------------------------------------------------------------------
Natural
Gas April 1, 2010
fixed to June 30, 2010 5,000 GJ/day $ 5.53 CDN $ 5.53 CDN AECO
Natural
Gas July 1, 2010
fixed to Sept. 30, 2010 10,000 GJ/day $ 5.66 CDN $ 5.66 CDN AECO
Natural
Gas Oct. 1, 2010
fixed to Dec. 31, 2010 10,000 GJ/day $6.245 CDN $6.245 CDN AECO
---------------------------------------------------------------------
For the three and nine months ended September 30, 2009 and 2008, the
gain (loss) on commodity contracts was comprised of the following:
---------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
---------------------------------------------------------------------
Gain (loss) on
commodity
contracts
Realized(1) $ 5,572 $ (11,831) $ 13,992 $ (28,592)
Unrealized(2) (3,851) 49,911 1,289 6,674
---------------------------------------------------------------------
$ 1,721 $ 38,080 $ 15,281 $ (21,918)
---------------------------------------------------------------------
(1) Realized gains and losses on commodity contracts represent actual
cash settlements and other amounts paid under these contracts.
(2) Unrealized gains and losses on commodity contracts represent
non-cash adjustments for changes in the fair value of these
contracts during the period.
The Trust has entered into a natural gas physical delivery sales
contract to sell 5,275 GJ/day at a fixed price of $7.90/GJ for the
fourth quarter of 2009.
d. Interest rate risk
The Trust had no interest rate swap or financial contracts in place
during the three and nine months period ended September 30, 2009.
e. Capital management
The Trust's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain the
future development of the business. The Trust manages its capital
structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of the underlying
petroleum and natural gas assets. The Trust considers its capital
structure to include unitholders' equity, bank debt, convertible
debentures and working capital. In order to maintain or adjust the
capital structure, the Trust may from time to time issue trust units,
adjust its capital spending, and/or dispose of certain assets to
manage current and projected debt levels.
The Trust monitors capital based on the ratio of total net debt to
annualized funds flow (the "ratio"). This ratio is calculated as
total net debt, defined as outstanding bank debt, plus the liability
component of convertible debentures, plus or minus working capital
(excluding commodity contract assets and liabilities, current portion
of long-term debt and future income tax assets or liabilities),
divided by funds flow from operations (cash flow from operating
activities before changes in non-cash working capital and deductions
for asset retirement costs) for the most recent calendar quarter,
annualized (multiplied by four). The total net debt to annualized
funds flow ratio may increase at certain times as a result of
acquisitions, fluctuations in commodity prices, timing of capital
expenditures and other factors. In order to facilitate the management
of this ratio, the Trust prepares annual capital expenditure budgets
and sets unitholder distributions on a monthly basis. Capital
expenditure budgets and levels of monthly unitholder distributions
are reviewed and updated as necessary depending on varying factors
including current and forecast prices, successful capital deployment
and general industry conditions. The annual and updated budgets and
monthly unitholder distributions are approved by the Board of
Directors.
Given the continuing uncertain economic conditions, the Trust has
suspended unit distributions in order to maintain financial
flexibility. The Trust plans to continue to monitor forecasted debt
levels to manage its operations within forecasted funds flow. The
Trust expects the total net debt to annualized funds flow ratio to
reflect the economic burdens experienced as a result of the recent
downturn in the global economic environment. The Trust will continue
to monitor developments within the global economic environment to
consider the impacts on the current or future lending arrangements.
The Trust's long-term strategy, under a more stable economic
environment, is to target a total net debt to annualized funds flow
ratio of 2.0 times. Focus in 2009 has been to improve the Company's
financial flexibility and to build a strong balance sheet. Strategic
divestitures completed during the year has contributed to the
reduction of the Trust's ratio of total net debt to annualized funds
flow based on 2009 third quarter results to 2.4 times compared to
9.2 times at December 31, 2008. True continues to take a balanced
approach to the priority use of funds flows. The Debentures have a
maturity date of June 30, 2011. Upon maturity, the Company may settle
the principal in cash or issuance of additional common shares of
Bellatrix effective November 1, 2009. Excluding Debentures, net debt
to annualized funds flow based on 2009 third quarter results was
0.5 times.
The calculation of total net debt and total net debt to cash flow is
as follows:
---------------------------------------------------------------------
Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
---------------------------------------------------------------------
Long-term debt 26,485 116,591 26,485 116,591
Convertible
debentures
(liability
component) 82,549 80,693 82,549 80,693
Working capital
excess (4,701) (3,511) (4,701) (3,511)
---------------------------------------------------------------------
Total net debt(1)
at year end 104,333 193,773 104,333 193,773
Debt to funds flow
from operations
ratio (annualized)(2)
Funds flow from
operations
(annualized) 44,360 85,954 37,792 96,037
Total net debt(1) to
periods funds flow
from operations
ratio (annualized) 2.4x 2.3x 2.8x 2.0x
Net debt(1)
(excluding convertible
debentures) at quarter
end 21,784 113,080 21,784 113,080
Net debt to periods
funds flow from
operations ratio
(annualized) 0.5x 1.3x 0.6x 1.2x
Debt to funds flow
from operations
ratio (trailing)(3)
Total net debt to
periods funds flow
from operations ratio
(trailing) 2.0x 2.1x 2.0x 2.1x
Net debt to periods
funds flow from
operations ratio
(trailing) 0.4x 2.1x 0.4x 2.1x
---------------------------------------------------------------------
(1) Net debt includes the net working capital deficiency (excess)
before short-term commodity contract assets and liabilities,
current portion of long-term debt and short-term future income
tax assets and liabilities. Total net debt also includes the
liability component of convertible debentures and excludes asset
retirement obligations and the future income tax liability.
(2) Debt to funds flow from operations ratio (annualized) is
calculated based upon second quarter funds flow from operations
annualized.
(3) Trailing periods funds flow from operations is based on the
trailing twelve-months period ended September 30, 2009 and 2008.
The Trust's credit facilities are based on petroleum and natural gas
reserves (see note 6). The credit facilities outline limitations on
percentages of forecasted production, from external reserve engineer
data, which may be managed through financial commodity risk
management contracts and limitations on property dispositions without
prior consent of the lenders. The Trust also had normal course
issuer bids for its convertible debentures and trust units, as
detailed in note 7 and 10, respectively.
f. Fair value of financial instruments
The Trust's financial instruments as at September 30, 2009 include
accounts receivable, deposits, marketable securities, commodity
contract liability, accounts payable and accrued liabilities,
distributions payable, long-term debt and convertible debentures. The
fair value of accounts receivable, accounts payable and accrued
liabilities and distributions payable approximate their carrying
amounts due to their short-terms to maturity.
The fair value of commodity contracts is determined by discounting
the difference between the contracted price and published forward
price curves as at the balance sheet date, using the remaining
contracted petroleum and natural gas volumes. The fair value of
commodity contracts as at September 30, 2009 was a net asset of
$5.0 million.
Long-term bank debt bears interest at a floating market rate and
accordingly the fair market value approximates the carrying value.
The fair value of the convertible debentures of $74.4 million is
based on exchange traded values.
Bellatrix Exploration Ltd. is a Calgary-based oil and natural gas exploration and production company. Bellatrix was incorporated under the Business Corporations Act of Alberta. The Company explores for, develops and holds interests in petroleum and natural gas properties. Common shares and convertible debentures of Bellatrix trade on the
For further information: Raymond G. Smith, P.Eng., President and CEO, (403) 750-2420 or Edward J. Brown, CA, Vice President, Finance and CFO, (403) 750-2655, or Troy Winsor, Investor Relations, (800) 663-8072; Bellatrix Exploration Ltd., 2300, 530 - 8th Avenue SW, Calgary, Alberta, Canada, T2P 3S8, Phone: (403) 266-8670, Fax: (403) 264-8163, www.bellatrixexploration.com
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