HOUSTON, TEXAS — (Marketwired) — 05/13/13 — Caza Oil & Gas, Inc. (“Caza” or the “Company”) (TSX: CAZ)(AIM: CAZA) is pleased to provide its unaudited financial and operational results for the three-months ended March 31, 2013.
Unaudited First Quarter Financial Results
First Quarter Operational Results and Recent Events
W. Michael Ford, Chief Executive Officer commented:
“We are pleased to provide our financial and operational results for the first quarter of 2013. Our oil and NGL volumes now comprise 68% of the Company–s combined oil and natural gas production. Increasing the ratio of oil and NGL production versus natural gas production has been a primary focus for the Company for the past two years, and we expect this trend to continue in 2013 with more Bone Spring play wells coming online.”
“The Company–s overall production figures were down for this quarter due in part to a key third party operated production facility in Lea County, NM being shut down for a significant portion of the quarter. This is an example of how the New Mexico Oil Conservation Division (NMOCD) website may be a misleading source for production information when used in isolation. The facility has been repaired and is now fully operational. Having the production facility operational along with the installation of a submersible pump on the Caza Ridge well should have an immediate effect on the Company–s production efficiencies in this area. These efficiencies coupled with additional Bone Spring play wells coming online, should also help to increase the Company–s overall production figures beginning in Q2 2013.”
“Along those lines, we are also very happy to report that the completion has begun on the Lennox well, and we hope to have the well flowing back in the near future. Also, OXY–s drilling of the initial Brushy Canyon well on the Roja property ahead of schedule was welcome news. We believe the Roja/Madera area is highly prospective for Brushy Canyon and Bone Spring reserves, and we look forward to participating in the drilling of OXY–s second well in this area on the Madera property in the very near future. Finally, the Chaparral well, although not considered material, is a very good result and bodes well for future drilling on other Company Bone Spring prospects in Lea County.”
“I am very pleased with the Company–s progress in the Bone Spring play. This area has been a primary focus for the Company and has the potential to generate material value creation for our shareholders.”
Copies of the Company–s unaudited financial statements for the first quarter ended March 31, 2013, and the accompanying management–s discussion and analysis are available on SEDAR at and the Company–s website at .
About Caza
Caza is engaged in the acquisition, exploration, development and production of hydrocarbons in the following regions of the United States of America through its subsidiary, Caza Petroleum, Inc.: Permian Basin (West Texas and Southeast New Mexico) and Texas and Louisiana Gulf Coast (on-shore).
In accordance with AIM Rules – Guidance Note for Mining, Oil and Gas Companies, the information contained in this announcement has been reviewed and approved by Anthony B. Sam, Vice President Operations of Caza who is a Petroleum Engineer and a member of The Society of Petroleum Engineers.
ADVISORY STATEMENT
Information in this news release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws. Such information is often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “schedule”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “intend”, “could”, “might”, “should”, “believe”, “develop”, “test”, “anticipation” and similar expressions. In particular, information regarding the depth, timing and location of future drilling, intended production testing and the Company–s future working interests and net revenue interests in properties contained in this news release constitutes forward-looking information within the meaning of securities laws.
Implicit in this information, are assumptions regarding the success and timing of drilling operations, rig availability, projected revenue and expenses and well performance. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operations, operating results and economic performance of the Company are subject to a number of risks and uncertainties, including general economic, market and business conditions and could differ materially from what is currently expected as set out above. In addition, the geotechnical analysis and engineering to be conducted in respect of certain wells may not be complete. Future flow rates from wells may vary, perhaps materially, and wells may prove to be technically or economically unviable. Any future flow rates will be subject to the risks and uncertainties set out herein.
For more exhaustive information on these risks and uncertainties you should refer to the Company–s most recently filed annual information form which is available at and the Company–s website at . You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time except as may be required by securities laws.
GLOSSARY OF ABBREVIATIONS
The term boe may be misleading, particularly if used in isolation. A boe conversion of six thousand cubic feet per one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
1. Basis of Presentation
Caza Oil & Gas, Inc. (“Caza” or the “Company”) was incorporated under the laws of British Columbia on June 9, 2006 for the purposes of acquiring shares of Caza Petroleum, Inc. (“Caza Petroleum”). The Company and its subsidiaries are engaged in the exploration for and the development, production and acquisition of, petroleum and natural gas reserves. The Company–s common shares are listed for trading on the TSX (symbol “CAZ”) and AIM stock exchanges (symbol “CAZA”). The corporate headquarters of the Company is located at 10077 Grogan–s Mill Road, Suite 200, The Woodlands, Texas 77380 and the registered office of the Company is located at Suite 1700, Park Place, 666 Burrard Street Vancouver, British Columbia, V6C 2X8.
Caza–s functional and presentational currency is the United States (“U.S.”) dollar as the majority of its transactions are denominated in the currency.
The condensed consolidated financial statements (the “Financial Statements”) were prepared in accordance with IAS 34 – Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”).
These Financial Statements should be read in conjunction with the Company–s audited annual consolidated financial statements as at and for the year ended December 31, 2012, which outline the Company–s significant accounting policies in Note 2 thereto, as well as the Company–s critical accounting judgments and key sources of estimation uncertainty, which have been applied consistently in these Financial Statements. The note disclosure requirements of annual consolidated financial statements provide additional disclosures to that required for interim unaudited condensed consolidated financial statements.
These Financial Statements were approved for issuance by the Board of Directors on May 9, 2013.
Changes in Accounting Policies
As disclosed in the December 31, 2012 consolidated financial statements, effective January 1, 2013, Caza adopted IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint Arrangements, IFRS 12 “Disclosure of Interests in Other Entities”, and the amendments to IAS 28 “Investments in Associates and Joint Ventures”.
There were no changes to the consolidated financial statements or the consolidation process as a result of adoption of IFRS 10. IFRS 11 classifies interests in joint arrangements as joint ventures or joint operations depending on the rights and obligations of the parties in the arrangement. Caza performed a review of interests in joint arrangements and concluded that shared wells operate as joint operations and accordingly there is no change in the accounting for these assets as a result of adoption of this standard. As a result, there were no changes as a result of the adoption of IFRS 12 as well.
Furthermore Caza was also required to adopt IFRS 13 “Fair Value Measurements,” amendments to IAS 1 “Presentation of Financial Statements,” amendments to IFRS 7 “Financial Instruments: Disclosures.” There were no material changes as a result of the adoption of these standards.
2. Exploration and evaluation assets (“E&E”)
During the period ended March 31, 2013, the Company added $2,664,831 of exploration and evaluation costs to E&E relating to the Lennox 33 State #2H well drilled in the Bone Spring play in New Mexico. The Company also transferred $4,900,766 to the Petroleum and natural gas properties and equipment relating to the Forehand Ranch 27 State #1H well that was completed during the period ended March 31, 2013.
3. Petroleum and natural gas properties and equipment
Future development costs of proved undeveloped reserves of $43,388,000 were included in the depletion calculation at March 31, 2013 and December 31, 2012. The Company did not note any indications of impairment as at March 31, 2013.
There were no impairment indicators as of March 31, 2013. During the three months ended March 31, 2012, the Company recorded an impairment $2,688,506 primarily due to changes in the estimates of expected future natural gas prices used in determining the fair value. The March 31, 2012 impairment was recognized using a 16% discount rate.
4. Decommissioning Liabilities
The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of petroleum and natural gas properties:
The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $1,522,206 (December 31, 2012 – $1,415,507). The obligation was calculated using a risk free discount rate of 2.5 percent (2012 – 2.5 percent) and an inflation rate of 3 percent (2012 – 3 percent). It is expected that this obligation will be funded from general Company resources at the time the costs are incurred with the majority of costs expected to occur between 2013 and 2030.
5. Related Party Transactions
The aggregate amount of expenditures made to related parties:
Singular Oil & Gas Sands, LLC (“Singular”) is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.
Singular participates in the drilling of the Matthys McMillan Gas Unit #2 and the O B Ranch #1 and 2 wells located in Wharton County, Texas. Under the terms of that agreement, Singular paid 14.01% of the drilling costs through completion to earn a 10.23% net revenue interest on the Matthys McMillan Gas Unit #2 well and paid 12.5% of the drilling costs to earn a 6.94% net revenue interest on the O B Ranch #1 well. Under the terms of the agreement of the O B Ranch #2 Singular paid 9.375% of the drilling costs to earn approximately 6.8% net revenue interest. This participation was in the normal course of Caza–s business and on the same terms and conditions to those of other joint interest partners. Singular owes the Company $nil in joint interest partner receivables as at March 31, 2013 (December 31, 2012 – $ 6,336).
All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties and which is comparable to those negotiated with third parties.
6. Commitments and Contingencies
As of March 31, 2013, the Company is committed under operating leases for its offices and corporate apartment in the following aggregate minimum lease payments which are shown below:
7. Supplementary Information
The money market instruments bear interest at a rate of 0.060% as at March 31, 2013 (December 31, 2012 – 0.082%).
8. Financial Instruments
Credit Risk
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the consolidated statement of financial position date. A majority of the Company–s financial assets at the consolidated statement of financial position date arise from natural gas liquids and natural gas sales and the Company–s accounts receivable that are with these customers and joint interest participants in the oil and natural gas industry. Industry standard dictates that commodity sales are settled on the 25th day of the month following the month of production. The Company–s natural gas and condensate production is sold to large marketing companies. Typically, the Company–s maximum credit exposure to customers is revenue from two months of sales. During the period ended March 31, 2013, the Company sold 68.32% (March 31, 2012 – 78.39%) of its natural gas and condensates to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas and condensates in the United States. In addition, when joint operations are conducted on behalf of a joint interest partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call to the partner of the operation being conducted.
Caza management assesses quarterly whether there should be any impairment of the financial assets of the Company. At March 31, 2013, the Company had overdue accounts receivable from certain joint interest partners of $ 687 which were outstanding for greater than 60 days and $148,085 that were outstanding for greater than 90 days. At March 31, 2013, the Company–s two largest joint interest partners represented approximately 8% and 7% of the Company–s receivable balance (March 31, 2012 26% and 8% respectively). The maximum exposure to credit risk is represented by the carrying amount on the consolidated statement of financial position of cash and cash equivalents, restricted cash accounts receivable and deposits.
Other Financial Instruments
The Company entered into an Equity Adjustment Agreement with Global Master SPV Ltd., an investment fund managed by Yorkville Advisors Global, LP in conjunction with its Standby Equity Distribution Agreement dated November 23, 2012 with Yorkville. Pursuant to the Agreement, during the three months ended March 31, 2013, the Company issued 3,846,154 common shares to Yorkville at a price of GBP 0.13 per share for aggregate proceeds of GBP 500,000 (US$756,451).
Under the terms of the Agreement, if on February 28, 2014 the common share market price (determined as 95% of the average daily volume weighted average price of common shares (VWAP) during the preceding 22 trading days) is greater than GBP 0.13, then Yorkville will pay to the Company the difference multiplied by the number of New Common Shares, and if the market price is less than GBP 0.13 then the Company will pay to Yorkville the difference multiplied by the number of New Common Shares. The fair value of this derivative was calculated at the date of issuance using inputs as of that date and at March 31, 2013 using inputs as of March 31, 2013, including the share price, the strike price and the estimated volatility over the remaining term. The fair value of $110,000 has been included within current liabilities on the statement of financial position, and the change in fair value of $55,000 since the date of issuance is included in other expenses in the consolidated statement of net loss.
The Company has deposited in escrow GBP 275,000 (US$ – $416,048) as security for this contingent payment obligation, which has been recorded within restricted cash on the consolidated statement of financial position.
Fair Value of Financial Instruments
The Company has determined that the fair values of the financial instruments consisting of cash and cash equivalents, restricted cash, accounts receivable, deposits and accounts payable are not materially different from the carrying values of such instruments reported on the consolidated statement of financial position due to their short-term nature. At March 31, 2013, the fair value of the notes payable is $1,615,227.
IFRS establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:
The Company–s cash and cash equivalents and restricted cash, which are classified as fair value through profit or loss, are categorized as Level 1 financial instruments.
The Company–s notes payable are categorized as Level 2 financial instruments and were recorded at fair valued on issuance using a market interest rate for similar debt issued without the warrants attached. The Company–s derivative as described above under “Other Financial Instruments” is also a Level 2 financial instrument.
All other financial assets are classified as loans or receivables and are accounted for on an amortized cost basis. All financial liabilities are classified as other liabilities. There are no financial assets on the consolidated statement of financial position that have been designated as available-for-sale. There have been no changes to the aforementioned classifications during the periods presented.
9. Subsequent Event
On April 8, 2013 Caza issued 4,948,682 common shares to Yorkville at a price of GBP 0.101037 per share.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
Contacts:
Caza Oil & Gas, Inc.
Michael Ford
CEO
+1 432 682 7424
Caza Oil & Gas, Inc.
John McGoldrick
Chairman
+65 9731 7471 (Singapore)
Cenkos Securities plc
Jon Fitzpatrick
+44 20 7397 8900 (London)
Cenkos Securities plc
Neil McDonald
+44 131 220 6939 (Edinburgh)
VSA Capital Limited
Andrew Raca
+44 20 3005 5004
VSA Capital Limited
Malcolm Graham-Wood
+44 20 3005 5012
M:Communications
Chris McMahon
+44 20 7920 2330