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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-10351
ENTERRA ENERGY CORP.
(Exact name of registrant as specified in its charter)
Alberta, Canada N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600, 500-4th Avenue S.W. T2P 2V6
Calgary, Alberta, Canada (Zip Code)
(Address of principal executive offices)
403-263-0262
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Preferred Shares, as of the latest practicable date.
As at March 31, 2002 Enterra Energy Corp. (the ""Company ") had 1,294,466 Series
1 Preferred Shares outstanding.
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ENTERRA ENERGY CORP.
2 0 0 2
FIRST QUARTER REPORT
[PHOTO]
HIGHLIGHTS
SOME OF THE HIGHLIGHTS INCLUDE THE FOLLOWING ITEMS IN Q1, 2002 AS COMPARED TO
Q1, 2001:
o INCREASED Q1 PRODUCTION BY 97% FROM 1,232 BOE/DAY TO 2,422 BOE/DAY
o INCREASED Q1 REVENUE BY 31% FROM $4.3 MILLION TO $5.6 MILLION
o INCREASED Q1 OPERATING CASH FLOW BY 35% FROM $1.8 MILLION TO $2.4 MILLION
o INCREASED Q1 EARNINGS BY 422% FROM $0.6 MILLION TO $3.2 MILLION
o DECREASED Q1 OPERATING COSTS PER BOE BY 36% FROM $12.32 TO $7.88
o DECREASED Q1 ADMINISTRATIVE EXPENSES PER BOE BY 51% FROM $2.32 TO $1.13
o STRENGTHENED BALANCE SHEET BY REDEEMING PREFERRED SHARES AT A SUBSTANTIAL
DISCOUNT, RESULTING IN A GAIN OF $2.9 MILLION
OPERATIONS
Net earnings for the quarter were $3.1 million (a 416% increase over the same
period in 2001) or $0.34 on a per share basis (compared to $0.11 per share in
2001). Included in the Q1, 2002 earnings was a one-time gain of $2.9 million as
a result of the Company redeeming 83% of its Series 1 preferred shares for $2.3
million. Enterra was able to redeem over 6 million Series 1 preferred shares for
approximately $0.37 per share, a 56% discount over their stated redemption value
of $0.85 per share. Enterra saved $2.9 million by acting quickly when a unique
opportunity presented itself. The Company's balance sheet is now much stronger
as a result of this transaction.
Enterra increased its cash flow by 35% in Q1, 2002 to $2.4 million (compared to
$1.8 million in Q1, 2001 after excluding last to the settlement of hedges) or
$0.27 on a per share basis (compared to $0.33 per share in 2001, again excluding
the impact of the gain on settlement of hedges).
As mentioned in the Company's criteria and the best measure of success for
Enterra. The Company was able to actually increase operating cash flow in a
quarter where prices were, on average, 34% lower than one year ago. We feel this
is a tremendous accomplishment. We have managed to reduce our administrative
expenses by 51% and our operating costs by 36% while increasing our production
by 97%.
Drilling activity in the first quarter resulted in a significant discovery at
Gordondale where gas was found in four separate formations. The discovery well
is already on production at more than 2 mmcf/day. Enterra has identified 15 or
more additional potential drilling locations ranging from 200 meters to 2,450
meters. The area has multi-zone potential with more than 10 different producing
formations. Enterra is the operator of the well and holds interests ranging from
30% (including the discovery well) to 100% over 5,600 acres.
SUMMARIZED FINANCIAL AND OPERATIONAL DATA
(in Thousand's except for volumes and per share amounts)
QUARTER ENDED MARCH 31 2002 2001 CHANGE
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Average production rate during quarter (boe per day) 2,422 1,232 97%
Average production revenue $ 5,598 $ 4,288 + 31%
Cash flow from operations for the quarter* $ 2,436 $ 1,799 + 35%
Cash flow per share for the quarter* $ 0.27 $ 0.33 - 19%
Cash flow for the quarter, as reported $ 2,436 $ 3,289 - 26%
Cash flow per share, as reported $ 0.27 $ 0.60 - 56%
Net earnings for the quarter, as reported $ 3,150 $ 610 + 416%
Net earnings per share for the quarter, as reported $ 0.34 $ 0.11 + 212%
Net earnings for the quarter without gain** $ 244 $ 610 - 60%
Net earnings per share without gain** $ 0.03 $ 0.11 - 76%
Average number of shares outstanding during quarter 9,150,622 5,470,245 + 68%
Average price per bbl of oil during quarter $ 27.57 $ 37.72 - 27%
Average price per mcf of natural gas during quarter $ 3.59 $ 8.93 - 60%
Operating costs per boe during quarter $ 7.88 $ 12.37 - 36%
General and administrative expenses per boe during quarter $ 1.13 $ 2.32 - 51%
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* Excludes the 2001 $1.5 million one-time gain on settlement of hedges
** Excludes the 2002 $2.9 million one-time gain on redemption of preferred
shares
BALANCE SHEET CLASSIFICATION
Readers may notice that the Company's current liability, whereby the same bank
debt was a long-term liability at December 31, 2001. Nothing has changed with
the nature or the terms of our banking arrangement with our lender. The
reclassification of our bank debt from long-term liability to current liability
is the result of new accounting rules which came into effect January 1, 2002.
These rules specify that all borrowings where, among other things, the lender
has a right to demand repayment within 12 months (which is the case with our
revolving production facility) are to be classified as current liabilities.
FOR FURTHER INFORMATION CONTACT:
Reg J. Greenslade, President and Chief Executive Officer (403) 213-2507
Luc Chartrand, Chief Financial Officer (403) 213-2502
Additional information can be obtained at the www.enterraenergy.com
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian Dollars)
MARCH 31 DECEMBER 31
2002 2001
(UNAUDITED)
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ASSETS
CURRENT ASSETS
Cash $ 49,966 $ 43,364
Accounts receivable 7,101,988 6,296,639
Prepaid expenses and deposits 667,577 583,058
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7,819,531 6,923,061
DEFERRED FINANCING CHARGES 239,000 --
PROPERTY AND EQUIPMENT 72,905,530 73,139,497
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$80,964,061 $80,062,558
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LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 8,821,932 $ 8,989,389
Income taxes payable 121,393 163,103
Bank indebtedness (note 2) 21,143,550 18,408,904
Note payable (note 5) 550,000 --
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30,636,875 27,561,396
PROVISION FOR FUTURE ABANDONMENT AND SITE RESTORATION COST 731,588 751,088
FUTURE INCOME TAX LIABILITY 11,208,101 11,159,101
DEFERRED GAIN 613,378 761,302
SERIES 1 PREFERRED SHARES (NOTE 2) 1,100,297 6,305,586
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44,290,239 46,538,473
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SHAREHOLDERS' EQUITY
SHARE CAPITAL 29,568,263 29,568,263
RETAINED EARNINGS 7,105,559 3,955,822
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36,673,822 33,524,085
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$80,964,061 $80,062,558
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Approved on behalf of the Board:
/s/ Reg Greenslade, P. Eng. /s/ John McGrain
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Reg Greenslade, P.Eng. John McGrain
Director Director
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
Three Months Ended March 31
(Expressed in Canadian Dollars)
(Unaudited)
2002 2001
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REVENUE
Oil and gas $5,598,020 $4,288,379
EXPENSES
Royalties, net of ARTC 809,259 707,711
Production 1,717,731 1,370,757
General and administrative 246,460 256,728
Interest on long-term debt 208,123 40,219
Depletion, depreciation and future site restoration 2,290,000 948,600
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5,271,573 3,324,015
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EARNINGS BEFORE THE FOLLOWING 326,447 946,364
Gain on redemption of preferred shares 2,905,290 --
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EARNINGS BEFORE INCOME TAXES 3,231,737 964,364
Income taxes
Current 33,000 114,000
Future 49,000 240,000
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82,000 354,000
NET EARNINGS 3,149,737 610,364
RETAINED EARNINGS, BEGINNING OF YEAR 3,955,822 2,338,767
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RETAINED EARNINGS, END OF PERIOD $7,105,559 $2,949,131
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EARNINGS PER SHARE:
Basic $ 0.34 $ 0.11
Diluted $ 0.34 $ 0.11
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See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31
(Expressed in Canadian Dollars)
(Unaudited)
2002 2001
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CASH PROVIDED BY (USED IN):
OPERATIONS
Net earnings $ 3,149,737 $ 610,364
Add non-cash items:
Depletion and depreciation and future site restoration 2,290,000 948,600
Future income taxes 49,000 240,000
Deferred gain -- 1,680,031
Amortization of deferred gain (147,924) (189,651)
Gain on redemption of preferred shares (2,905,290) --
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Funds from operations 2,435,523 3,289,344
Net change in non-cash working capital items:
Accounts receivable (805,349) 701,352
Prepaid expenses (84,519) (31,350)
Accounts payable and accrued liabilities (167,457) (2,520,796)
Income taxes payable (41,710) 114,000
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1,336,488 1,552,550
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FINANCING
Bank indebtedness 2,734,646 (1,968,000)
Deferred financing charges (239,000) --
Issue of common shares, net of issue costs -- 6,269,028
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$ 2,495,646 $ 4,301,028
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INVESTING
Capital assets additions (2,798,688) (5,851,065)
Proceeds on disposal of property and equipment 731,656 --
Redemption of preferred shares (1,750,000) --
Future abandonment and site restoration costs (8,500) --
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(3,825,532) (5,851,065)
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INCREASE IN CASH 6,602 2,513
CASH, BEGINNING OF YEAR 43,364 1,443
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CASH, END OF PERIOD $ 49,966 $ 3,956
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FUNDS FROM OPERATIONS PER SHARE:
Basic $ 0.27 $ 0.60
Diluted $ 0.27 $ 0.60
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During the three months ended March 31, 2002 the Company paid $208,123 (2001 -
$40,219) of interest on bank debt.
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
The interim consolidated financial statements have been prepared by management
in accordance with Canadian generally accepted accounting principles. The
interim consolidated financial statements have been prepared following the same
accounting policies and methods used in preparing the consolidated financial
statements for the fiscal year ended December 31, 2001, except as described
below, and should be read in conjunction with those statements. The other
disclosures below are incremental to those reflected in the annual statements.
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Capital assets
As disclosed in the December 31, 2001 financial statements, the
Company has changed its method of accounting for petroleum and natural
gas properties from the "successful efforts" method to the "full cost"
method. The full cost method has been adopted retroactively and prior
financial statements have been restated. There was no impact of this
change on the March 31, 2001 consolidated income statement.
2. SERIES 1 PREFERRED SHARES:
On March 26, 2002 the Company purchased 6,123,870 of its Series 1
preferred shares for $2.3 million, resulting in a gain on redemption
of $2,905,290. The purchase was paid for with cash of $1,750,000 and a
note payable of $550,000. The note payable bears no interest and is
due December 31, 2002. As at March 31, 2002 there were 1,294,466
Series 1 preferred shares outstanding. These shares are non-voting.
They are transferable. Holders of these shares are not entitled to
receive any dividends until the first anniversary of the date of
issue. These shares are redeemable at any time by the Company for
$0.85 per share. Holders of these shares may require the Company to
redeem all or any of these shares, at $0.85 per share, at any time
following the first anniversary of the date of issue (August 16,
2001). There is no market for these shares and none is expected to
develop.
3. WARRANTS
On March 28, 2002 the Company agreed to issue 400,000 share purchase
warrants to an length U.S.-based consulting firm in connection with a
potential debt financing in the United States. The warrants are to
have a two-year term and are subject to different pricing (100,000
warrants at US$2.60, 100,000 at US$3.30 and 200,000 at US$4.00). The
US$2.60 warrants are to vest upon the execution of a non-binding
letter of intent relating to the proposed financing. The US$3.30 and
US$4.00 warrants are to vest only on the successful closing and
funding of the proposed financing.
4. STOCK BASED COMPENSATION
Effective January 1, 2002 the Company prospectively adopted the new
recommendations of the CICA with respect to the accounting for
stock-based compensation and other stock-based payments. In accordance
with the new standard, the Company elected to continue its policy that
no compensation is recorded on the grant of employee stock options and
consideration paid on the exercise of such options is recorded as
share capital. In addition, the new standard requires a fair value
based method of accounting for other stock-based payments. Had
compensation expense for the stock-based compensation plan been
determined based on the fair value at the grant dates for awards under
the plan after January 1, 2002, the Company's been the same as those
reported as there were no stock options issued during the quarter.
5. BANK INDEBTEDNESS
Bank indebtedness represents the outstanding balance under a line of
credit of $21,500,000 with the Alberta Treasury Branches. Drawings
bear interest at 0.25% above the Security is provided by a first
charge over all of the Company's demand. While the loan is due on
demand, the Company is not subject to scheduled repayments.
This loan was classified as a long-term liability in the December 31,
2001 financial statements. However, effective for fiscal periods
commencing January 1, 2002, the Company adopted the new CICA
recommendation regarding Balance Sheet Classification of Callable Debt
Obligations and Debt Obligations Expected to be Refinanced. All
borrowings where the lender has a right to demand repayment within 12
months are required to be classified as current liabilities. The
impact of this change has been to increase current liabilities by the
amount of any such borrowings then in place. At March 31, 2002, this
change has increased current liabilities by $21,143,550 and reduced
long-term debt by a corresponding amount.
The Company is currently not subject to principal repayments and no
payments are required in 2002.
CORPORATE INFORMATION
HEAD OFFICE DIRECTORS
2600, 500 - 4th Ave. S.W. Walter A. Dawson*
Calgary, AB T2P 2V6 Reg J. Greenslade
Tel (403) 263-0262 H.S. (Scobey) Hartley*
Fax (403) 294-1197 Thomas J. Jacobsen
John P. McGrain*
www.enterraenergy.com
OFFICERS
AUDITORS John P. McGrain
KPMG LLP Chairman
Chartered Accountants
Calgary, AB Reg J. Greenslade
President and Chief Executive Officer
SOLICITORS
Donahue & Partners Thomas J. Jacobsen
Calgary, AB Chief Operating Officer
RESERVOIR ENGINEERS Luc Chartrand, C.A.
McDaniel & Associates Consultants Ltd. Chief Financial Officer
Calgary, AB
Trevor Spagrud
BANKERS Vice President Operations
Alberta Treasury Branches
Calgary, AB Rick McHardy
Corporate Secretary
TRANSFER AGENT
Olympia Trust Company *Member, Audit Committee
Calgary, AB
STOCK EXCHANGE LISTINGS
Nasdaq (symbol: EENC)
TSX Venture (symbol: ENT)
ABBREVIATIONS
bopd barrels of oil per day
mcf/day thousands of cubic feet per day
boe/day barrels of oil equivalent per day
(6 mcf equivalent to 1 bbl)
boe barrels of oil equivalent
(6 mcf equivalent to 1 bbl)
mboe thousands of barrels of oil
equivalent
mmcf/day millions of cubic feet per day