PetroKamchatka Swings to Loss
PetroKamchatka reported its audited financial results for its fiscal year ended May 31, 2010 and provided an operations update.
Certain selected financial information as at May 31, 2010 and May 31, 2009 and for the fiscal years ended May 31, 2010 and 2009 are set out below and should be read in conjunction with PetroKamchatka's Consolidated Financial Statements and MD&A.
SELECTED FINANCIAL INFORMATION
The audited consolidated financial information for PetroKamchatka includes the Corporation, its subsidiaries and its proportionate share of the accounts of its joint interest entities.
The Corporation followed the continuity of interest basis of accounting whereby the Corporation is considered a continuation of PetroKamchatka Resources Ltd., which was acquired by the Corporation on November 23, 2009 pursuant to a takeover offer. All financial information is stated in United States dollars, unless otherwise indicated.
PetroKamchatka reported a net loss for the year ended May 31, 2010 of $38.5 million ($0.09 per share) compared to a net loss of $7.8 million ($0.05 per share) for the year ended May 31, 2009.
The current year loss included a write-down of property and equipment of approximately $32 million, including a $29.5 partial million write-down of its full cost pool of capitalized petroleum and natural gas costs in Russia. There was also a $2.0 million write-down recognized in the current fiscal year in the carrying value of the Corporation's 46.25% net interest in a drilling rig.
The write down of the Russian full cost pool resulted from an impairment test following the drilling of two unsuccessful wells in Tigil, Russia during the fiscal year ended May 31, 2010. The Corporation also incurred a one-time expense of approximately $1.2 million relating to its reorganization in the year and its listing on the TSX Venture Exchange. Other costs contributing to the current year loss included stock-based compensation expense of $0.7 million and depreciation on its Russian drilling rig and equipment of $0.7 million. These amounts were partially offset by a $0.4 recovery of prior years expenses.
Cash used in operating activities was approximately $4.6 million, mostly to fund general and administration expenses. Capital expenditures for the year were approximately $5.7 million, which amount was net of Russian value added tax ("VAT") recoveries of approximately $5.0 million. Net capital expenditures for the year included the Corporation's proportionate share of drilling the two wells in Russia.
In the year ended May 31, 2010, the Corporation raised approximately $19.8 million to finance its ongoing exploration program in Russia and to fund general and administration expenses
Working capital at May 31, 2010 was approximately $7.5 million, including cash of $7.9 million. The Corporation has no long-term debt.
The net loss for the year ended May 31, 2009 included a write-down of $2.5 million in the carrying value of the Corporation's net 46.25% interest in a drilling rig. Other significant costs which contributed to the loss of the prior year included $0.6 million of stock-based compensation, $0.3 million of financing costs, and a foreign exchange loss of $0.9 million.
Cash used in operating activities in fiscal 2009 was approximately $4.5 million mainly the result of approximately $3.6 million of general and administration expenses. Capital expenditures for the prior fiscal year were approximately $16.3 million, which amount was net of Russian VAT recoveries of approximately $3.4 million. During the year ended May 31, 2009, the Corporation raised $11.7 million which was mainly used to fund exploration and pre-drilling costs in Russia and also to fund general and administration expenses. Working capital deficiency at May 31, 2009 was $3.2 million.
PetroKamchatka completed the drilling of its first two exploration wells on the Tigil Block in the Kamchatka Peninsula. Both wells were unsuccessful. The first exploration well, Oyarskaya 1P, was drilled to a total depth of 3,236 meters in January 2010. The well did not reach the target tertiary reservoir sandstones as the overlying formations were much thicker than predicted. Although the Oyarskaya 1P was initially suspended, it was abandoned after the completion of the second exploration well. The second exploration well, the Chernorechenskaya 1P, was located approximately twenty kilometers from the first well. This well reached a total depth of 2,596 meters in basement rocks on the structure without encountering the target Snatol sandstone formation and was abandoned.
Both wells were drilled using the mobile drilling rig and related equipment purchased in previous fiscal years and owned in the joint interest entity, CJSC Tigil Exploration. The Corporation's effective interest in CJSC Tigil Exploration is 45%. The first well was drilled on schedule and the second was drilled ahead of schedule and under budget. There were no major operational, environmental or safety problems encountered.
After drilling the second well at Tigil, the Chernorechenskaya 1P well, the drilling rig and equipment was moved to the southern shore of the Tigil River where it will be stored until being moved to the next drilling location. The Corporation and its joint venture partner are reviewing future drilling plans.