e6vk
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the period November 5, 2005 to November 10, 2005
PENGROWTH ENERGY TRUST
2900,
240 -
4th Avenue S.W.
Calgary, Alberta T2P 4H4 Canada
(address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual reports under cover
Form 20-F or Form 40-F.]
Form 20-F o Form 40-F þ
[Indicate by check mark whether the registrant by furnishing the information contained in this
Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under
the Security Exchange Act of 1934.
Yes o No þ
[If Yes is marked, indicate below the file number assigned to the registrant in connection
with Rule 12g3-2(b):_________]
DOCUMENTS FURNISHED HEREUNDER:
1. |
|
Third Quarter Report for the period ended September 30, 2005. |
|
2. |
|
Update Regarding Non-Resident Ownership and Mutual Fund Trust Status. |
|
3. |
|
Certification of Interim Filings CEO. |
|
4. |
|
Certification of Interim Filings CFO. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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PENGROWTH ENERGY TRUST
by its administrator PENGROWTH
CORPORATION
|
|
November 10, 2005 |
By: |
/s/ Gordon M. Anderson
|
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|
|
Name: |
Gordon M. Anderson |
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|
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Title: |
Vice President |
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|
T H I R D Q U A R T E R R E S U L T S
S E P T E M B E R 3 0 , 2 0 0 5
H I G H L I G H T S
During the third quarter of 2005, Pengrowth generated record distributable cash at $162 million
versus $104 million in the third quarter of 2004, an increase of more than 55 percent. This is
the third consecutive quarter of record distributable cash. Distributable cash for the first
nine months of 2005 increased 43 percent to $424 million from $296 million in the comparable
period of 2004 representing the highest level of distributable cash generated over any three
consecutive quarters in Pengrowths history.
Distributions to unitholders in the quarter totaled $0.69 per trust unit representing a payout
ratio of 69 percent of cash generated from operations. Pengrowths year-to-date payout ratio
decreased to approximately 77 percent of cash generated from operations, representing the
lowest payout ratio for any nine month period on record. The decrease in payout ratio is mainly
a result of higher commodity prices and production.
Pengrowth is pleased to announce an increase in monthly distributions for the fourth quarter
of 2005 from $0.23 to $0.25 per trust unit beginning with the December 15, 2005 distribution.
Capital expenditures for the first nine months of 2005 of $115 million were fully funded
with retained cash and proceeds from the exercise of trust unit rights and options. Pengrowth
currently anticipates the full year 2005 capital program to total $185 million.
During the third quarter, Pengrowth executed purchase and sale agreements with several
parties for the sale of certain non-core Pengrowth properties with associated production
estimated at 200 barrels of oil equivalent per day for gross proceeds of approximately $19
million. In addition, Pengrowth is working towards finalizing purchase and sale agreements with
several parties for gross proceeds of $20 million and associated production estimated at 400
barrels of oil equivalent per day.
At the end of the third quarter of 2005, Pengrowth was capitalized with 12 percent net debt
(long-term debt less working capital) representing a net debt to annualized cash flow from
operations of 0.8 times.
The strategy of Pengrowths board is to continue to seek long life reservoirs with large
reserves in place particularly where Pengrowth can augment value through enhanced recovery
techniques. In order to increase the efficiency of our operations and to add momentum to
value enhancing activities, Pengrowth has actively sought and successfully retained senior
operations management. Pengrowth is pleased to welcome Larry Strong, Vice President,
Geosciences; Jim Causgrove, Vice President, Production and Operations; and Bill Christensen,
Vice President, Strategic Planning and Reservoir Exploitation to the Pengrowth team.
Note regarding currency: All figures contained within this report are quoted in
Canadian dollars unless otherwise indicated.
- 2 - PENGROWTH ENERGY TRUST
Summary of Financial and Operating Results
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Three Months ended |
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Nine Months ended |
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|
September 30 |
|
% |
|
September 30 |
|
% |
($thousands, except per unit amounts) |
|
2005 |
|
2004 |
|
Change |
|
2005 |
|
2004 |
|
Change |
INCOME STATEMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales |
|
$ |
304,484 |
|
|
$ |
226,514 |
|
|
|
34 |
% |
|
$ |
797,587 |
|
|
$ |
592,569 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
100,243 |
|
|
$ |
51,271 |
|
|
|
96 |
% |
|
$ |
209,663 |
|
|
|
122,607 |
|
|
|
71 |
% |
Net income per unit |
|
$ |
0.63 |
|
|
$ |
0.38 |
|
|
|
66 |
% |
|
$ |
1.34 |
|
|
$ |
0.93 |
|
|
|
44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from operations |
|
$ |
158,976 |
|
|
$ |
116,258 |
|
|
|
37 |
% |
|
$ |
421,482 |
|
|
$ |
310,880 |
|
|
|
36 |
% |
Cash generated from operations per unit |
|
$ |
1.00 |
|
|
$ |
0.86 |
|
|
|
16 |
% |
|
$ |
2.70 |
|
|
$ |
2.35 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable cash* |
|
$ |
162,009 |
|
|
$ |
104,304 |
|
|
|
55 |
% |
|
$ |
423,860 |
|
|
$ |
296,220 |
|
|
|
43 |
% |
Distributable cash per unit* |
|
$ |
1.02 |
|
|
$ |
0.77 |
|
|
|
32 |
% |
|
$ |
2.71 |
|
|
$ |
2.24 |
|
|
|
21 |
% |
Distributions |
|
$ |
109,853 |
|
|
$ |
93,870 |
|
|
|
17 |
% |
|
$ |
326,119 |
|
|
$ |
266,595 |
|
|
|
22 |
% |
Distributions paid or declared per unit |
|
$ |
0.69 |
|
|
$ |
0.67 |
|
|
|
3 |
% |
|
$ |
2.07 |
|
|
$ |
1.94 |
|
|
|
7 |
% |
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|
Weighted average number of units outstanding |
|
|
158,789 |
|
|
|
135,906 |
|
|
|
17 |
% |
|
|
156,318 |
|
|
|
132,213 |
|
|
|
18 |
% |
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|
|
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BALANCE SHEET |
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Working capital |
|
$ |
(77,528 |
) |
|
$ |
(311,352 |
) |
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|
(75 |
)% |
|
$ |
(77,528 |
) |
|
$ |
(311,352 |
) |
|
|
(75 |
)% |
Property, plant and equipment and other assets |
|
$ |
2,090,399 |
|
|
$ |
1,985,737 |
|
|
|
5 |
% |
|
$ |
2,090,399 |
|
|
$ |
1,985,737 |
|
|
|
5 |
% |
Long-term debt |
|
$ |
422,220 |
|
|
$ |
355,320 |
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|
|
19 |
% |
|
$ |
422,220 |
|
|
$ |
355,320 |
|
|
|
19 |
% |
Unitholders equity |
|
$ |
1,467,859 |
|
|
$ |
1,235,575 |
|
|
|
19 |
% |
|
$ |
1,467,859 |
|
|
$ |
1,235,575 |
|
|
|
19 |
% |
Unitholders equity per unit |
|
$ |
9.22 |
|
|
$ |
9.06 |
|
|
|
2 |
% |
|
$ |
9.22 |
|
|
$ |
9.06 |
|
|
|
2 |
% |
|
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|
|
|
|
|
|
|
|
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|
Number of units outstanding at period end |
|
|
159,263 |
|
|
|
136,449 |
|
|
|
17 |
% |
|
|
159,263 |
|
|
|
136,449 |
|
|
|
17 |
% |
|
|
|
|
|
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DAILY PRODUCTION |
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|
Crude oil (barrels) |
|
|
20,660 |
|
|
|
20,735 |
|
|
|
0 |
% |
|
|
20,670 |
|
|
|
21,051 |
|
|
|
(2 |
)% |
Heavy oil (barrels) |
|
|
5,405 |
|
|
|
6,507 |
|
|
|
(17 |
)% |
|
|
5,695 |
|
|
|
2,799 |
|
|
|
103 |
% |
Natural gas (thousands of cubic feet) |
|
|
164,288 |
|
|
|
166,618 |
|
|
|
(1 |
)% |
|
|
158,426 |
|
|
|
140,133 |
|
|
|
13 |
% |
Natural gas liquids (barrels) |
|
|
5,448 |
|
|
|
5,139 |
|
|
|
6 |
% |
|
|
5,885 |
|
|
|
5,246 |
|
|
|
12 |
% |
Total production (boe) |
|
|
58,894 |
|
|
|
60,151 |
|
|
|
(2 |
)% |
|
|
58,654 |
|
|
|
52,452 |
|
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|
12 |
% |
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|
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|
TOTAL PRODUCTION (mboe) |
|
|
5,418 |
|
|
|
5,534 |
|
|
|
(2 |
)% |
|
|
16,013 |
|
|
|
14,372 |
|
|
|
11 |
% |
|
|
|
|
|
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|
PRODUCTION PROFILE |
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|
Crude oil |
|
|
35 |
% |
|
|
34 |
% |
|
|
|
|
|
|
35 |
% |
|
|
40 |
% |
|
|
|
|
Heavy oil |
|
|
9 |
% |
|
|
11 |
% |
|
|
|
|
|
|
10 |
% |
|
|
5 |
% |
|
|
|
|
Natural gas |
|
|
47 |
% |
|
|
46 |
% |
|
|
|
|
|
|
45 |
% |
|
|
45 |
% |
|
|
|
|
Natural gas liquids |
|
|
9 |
% |
|
|
9 |
% |
|
|
|
|
|
|
10 |
% |
|
|
10 |
% |
|
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|
AVERAGE REALIZED PRICES |
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|
|
|
|
|
|
|
|
Crude oil (per barrel) |
|
$ |
63.95 |
|
|
$ |
45.15 |
|
|
|
42 |
% |
|
$ |
58.31 |
|
|
$ |
42.71 |
|
|
|
37 |
% |
Heavy oil (per barrel) |
|
$ |
47.74 |
|
|
$ |
37.96 |
|
|
|
26 |
% |
|
$ |
33.82 |
|
|
$ |
36.25 |
|
|
|
(7 |
)% |
Natural gas (per mcf) |
|
$ |
8.57 |
|
|
$ |
6.36 |
|
|
|
35 |
% |
|
$ |
7.61 |
|
|
$ |
6.72 |
|
|
|
13 |
% |
Natural gas liquids (per barrel) |
|
$ |
57.75 |
|
|
$ |
42.33 |
|
|
|
36 |
% |
|
$ |
52.59 |
|
|
$ |
40.21 |
|
|
|
31 |
% |
Average realized price per boe |
|
$ |
56.07 |
|
|
$ |
40.90 |
|
|
|
37 |
% |
|
$ |
49.66 |
|
|
$ |
41.05 |
|
|
|
21 |
% |
* See the section entitled Non-GAAP Financial Measures
PENGROWTH ENERGY TRUST - 3 -
Summary of Trust Unit Trading Data
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|
|
Three Months ended |
|
Nine Months ended |
|
|
September 30 |
|
September 30 |
(thousands, except per unit amounts) |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
TRUST UNIT TRADING (Class A) |
|
|
|
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|
PGH (NYSE) after unit re-class* |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
25.75 |
U.S. |
|
$ |
18.94 |
U.S. |
|
$ |
25.75 |
U.S. |
|
$ |
18.94 |
U.S. |
Low |
|
$ |
21.55 |
U.S. |
|
$ |
14.40 |
U.S. |
|
$ |
18.11 |
U.S. |
|
$ |
14.40 |
U.S. |
Close |
|
$ |
25.42 |
U.S. |
|
$ |
17.93 |
U.S. |
|
$ |
25.42 |
U.S. |
|
$ |
17.93 |
U.S. |
Value |
|
$ |
340,318 |
U.S. |
|
$ |
350,374 |
U.S. |
|
$ |
1,190,435 |
U.S. |
|
$ |
350,374 |
U.S. |
Volume (thousands of units) |
|
|
14,502 |
|
|
|
21,200 |
|
|
|
55,276 |
|
|
|
21,200 |
|
PGF.A (TSX) * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
30.10 |
|
|
$ |
24.19 |
|
|
$ |
30.10 |
|
|
$ |
24.19 |
|
Low |
|
$ |
26.30 |
|
|
$ |
19.10 |
|
|
$ |
22.15 |
|
|
$ |
19.10 |
|
Close |
|
$ |
29.50 |
|
|
$ |
22.67 |
|
|
$ |
29.50 |
|
|
$ |
22.67 |
|
Value |
|
$ |
58,000 |
|
|
$ |
35,524 |
|
|
$ |
157,672 |
|
|
$ |
35,524 |
|
Volume (thousands of units) |
|
|
2,047 |
|
|
|
1,672 |
|
|
|
5,894 |
|
|
|
1,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRUST UNIT TRADING (Class B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PGF.B (TSX)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
21.26 |
|
|
$ |
20.00 |
|
|
$ |
21.26 |
|
|
$ |
20.00 |
|
Low |
|
$ |
18.25 |
|
|
$ |
18.03 |
|
|
$ |
16.10 |
|
|
$ |
18.03 |
|
Close |
|
$ |
20.58 |
|
|
$ |
18.87 |
|
|
$ |
20.58 |
|
|
$ |
18.87 |
|
Value |
|
$ |
441,039 |
|
|
$ |
105,650 |
|
|
$ |
1,327,210 |
|
|
$ |
105,650 |
|
Volume (thousands of units) |
|
|
22,738 |
|
|
|
5,588 |
|
|
|
71,326 |
|
|
|
5,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRUST UNIT TRADING (before unit re-class) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PGH (NYSE) before unit re-class* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
|
$ |
14.95 |
U.S. |
|
|
|
|
|
$ |
14.95 |
U.S. |
Low |
|
|
|
|
|
$ |
13.84 |
U.S. |
|
|
|
|
|
$ |
11.62 |
U.S. |
Close |
|
|
|
|
|
$ |
14.64 |
U.S. |
|
|
|
|
|
$ |
14.64 |
U.S. |
Value |
|
|
|
|
|
$ |
84,506 |
U.S. |
|
|
|
|
|
$ |
905,950 |
U.S. |
Volume (thousands of units) |
|
|
|
|
|
|
5,797 |
|
|
|
|
|
|
|
64,890 |
|
PGF.UN (TSX)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
|
$ |
19.75 |
|
|
|
|
|
|
$ |
21.25 |
|
Low |
|
|
|
|
|
$ |
18.52 |
|
|
|
|
|
|
$ |
15.55 |
|
Close |
|
|
|
|
|
$ |
19.42 |
|
|
|
|
|
|
$ |
19.42 |
|
Value |
|
|
|
|
|
$ |
68,531 |
|
|
|
|
|
|
$ |
964,766 |
|
Volume (thousands of units) |
|
|
|
|
|
|
3,554 |
|
|
|
|
|
|
|
52,319 |
|
|
|
|
* |
|
July 27, 2004, all trust units were re-classified into Class A or Class B trust units. |
|
|
|
Class A trust units trade on the NYSE under PGH and on the TSX under PGF.A. Class B trust units
trade only on the TSX under PGF.B. |
- 4 - PENGROWTH ENERGY TRUST
Presidents Message
Pengrowth is pleased to announce the unaudited quarterly results for the three months and nine
months ended September 30, 2005. The quarter was characterized by solid operating results and
robust commodity prices, allowing the trust to deliver exceptional results to its unitholders. For
the third consecutive quarter Pengrowth has generated record distributable cash of $162 million as
compared to $104 million in the third quarter of 2004, an increase of more than 55 percent.
Third quarter production increased approximately 12 percent on a year to date basis to 58,654 boe
per day mainly as a result of the additional production associated with the Crispin acquisition,
the increased interest in Swan Hills Unit No. 1 and ongoing development activities. Third quarter
2005 production decreased a modest two percent when compared to third quarter 2004 due mainly to
natural production declines. Based on these results, Pengrowth now expects daily production to
average between 57,500 to 58,500 boe per day for the full year 2005.
Pengrowth benefited from strong commodity prices during the quarter. Pengrowths average realized
prices increased 42 percent to Cdn $63.95 for light crude oil and 35 percent to Cdn $8.57 per mcf
for natural gas in the third quarter of 2005 as compared to the comparable period in 2004. On a
combined barrels of oil equivalent basis (boe), Pengrowths average realized price increased 37
percent to Cdn $56.07 per boe as compared to the same three-month period in 2004.
During the quarter, Pengrowth continued to provide unitholders with a consistent monthly
distribution of Cdn $0.23 per trust unit, the level of which distributions have been maintained
since the last increase on November 15, 2004. The decision to maintain the distribution level,
aided by higher commodity prices, resulted in a reduced payout ratio of 69 percent for the third
quarter of 2005 and 77 percent year-to-date. Consequently, Pengrowth has been able to fully fund
its year-to-date capital expenditures through the additional cash retained and proceeds from
issuing trust units and the exercise of trust unit rights and options.
Over the past two quarters Pengrowth has fully funded its distributions and capital expenditures
through withholdings from distributable cash. This is currently expected to continue in the fourth
quarter should the recent significant increases in natural gas prices since September to the
current U.S. $11.00 to $12.00 Henry Hub prices be sustained. As a result of the improved outlook
for distributable income for the fourth quarter of 2005 and the full year 2006 based on recent
forward strip pricing, the Board of Directors of Pengrowth Corporation have elected to increase the
rate of the monthly distribution from $0.23 to $0.25 per trust unit, an increase of approximately 9
percent for the fourth quarter beginning with the December 15, 2005 distribution.
Pengrowth continues to have one of the highest quality asset bases in the sector and our team is
continually assessing both opportunities for accretive acquisitions as well as opportunities to
optimize the existing asset portfolio. As part of the optimization initiative, Pengrowth executed
purchase and sale agreements with several parties during the third quarter of 2005 for the sale of
certain non-core properties with associated production estimated at 200 boe per day for gross
proceeds of approximately $19 million and is working toward finalizing additional agreements in the
fourth quarter for gross proceeds of $20 million and associated production of 400 boe per day.
There has been increased market volatility in the trust sector of late which may be partially
attributed to the Department of Finances consultation paper released on September 8, 2005 titled
Tax and Other Issues Related to Publicly Listed Flow-Through Entities. The consultation process
may result in changes to the regulatory or tax environment for Pengrowth and its unitholders which
could adversely impact Pengrowths trust unit price and its distributions. The consultation paper
launched a process of discussion and third-party input on the impact of publicly listed income
trusts and other flow-through entities (FTEs) on federal tax revenues and the Canadian economy.
Although not specifically referred to, FTEs could include royalty trusts such as Pengrowth Energy
Trust. The consultation process will seek input on a number of questions, including:
|
|
|
Does the tax advantage of FTEs relative to public corporations have a significant impact on
how businesses are organized in Canada? |
|
|
|
|
Have FTEs had a significant impact on tax revenues? Is there potential for revenue losses to
grow in the years to come?
|
|
|
|
|
What impacts are FTEs having on investment decision and the allocation of capital in Canada?
Is the overall impact on the economy positive or negative? |
|
|
|
|
Given the important role that tax-exempt investors play in Canadian capital markets, and
could play in the FTE market, what impact could this have on government revenues and economic
efficiency? |
|
|
|
|
Overall, are there public policy concerns about FTEs and how the tax system influences their
existence and, if so, what actions would be considered to address these concerns? |
This process will not include separate consultations announced by the Department of Finance on
December 6, 2004 regarding the 2004 Federal Budget proposals with respect to mutual funds
maintained primarily for the benefit of non-residents. The Department of Finance has invited
submissions until December 31, 2005. Subsequent to the consultation process the Minister of Finance
announced that there would be a moratorium on the issuance of tax ruling to FTEs.
PENGROWTH ENERGY TRUST - 5 -
The royalty trust industry has become an important element of Canadas capital markets and a
significant contributor to the capital resources available to the petroleum industry and the
efficiency of its operations. Throughout its 17 year history Pengrowth has fostered a culture of
innovation, operational excellence and environmental stewardship acquiring and effectively managing
legacy oil and natural gas properties in Canada. During that period Pengrowth has completed more
than 50 acquisitions in accordance with a series of tax rulings and policy pronouncements by CRA
and the Department of Finance while fostering relationships with all levels of government defined
by consultation, cooperation and compliance.
Pengrowth will continue its approach of consultation and cooperation and intends to make specific
submissions to the Department of Finance in both consultation processes on the benefits of
achieving certainty and maintaining the tax and regulatory regime governing royalty trusts that has
enhanced the value and efficiency of the petroleum industry and enabled Canadians across the
country to participate in that process.
Pengrowth has sought and achieved compliance with applicable legal and regulatory provisions.
On July 27, 2004, Pengrowth implemented a Class A and Class B trust unit structure to manage the
level of non-resident ownership of the Fund. Subsequent to implementation of the structure, and
prior to June 1, 2005, Pengrowth achieved foreign ownership below a threshold of 49.75% in
accordance with an advance tax ruling by Canada Revenue Agency essentially confirming the status of
Pengrowth Trust as a Mutual Fund Trust under the Income Tax Act (Canada).
To the extent that Class A trust units in the future represent less than the ownership threshold of
49.75 percent, conversion of Class B trust units to Class A trust units is permissible under the
Trust Indenture. Pengrowth proposed a new form of reservation system that was approved in
principle by unitholders at the Annual & Special Unitholder Meeting on April 26, 2005 in order to
provide all unitholders with an equal and orderly opportunity to convert Class B trust units into
Class A trust units. Pengrowth is currently working with Computershare Trust Company of Canada to
design an appropriate system and proposes to make a press release in respect to the implementation
of the system during the fourth quarter.
Pengrowth has been committed to building its business and attaining excellence in all aspects of
its business endeavours. The strategy of Pengrowths board is to continue to seek long-life
reservoirs with large reserves in place particularly where Pengrowth can augment value through
enhanced recovery techniques. Pengrowth also has core competencies in the development of shallow
gas and is developing expertise in coal bed methane and heavy oil as new core areas.
The acquisitions market is anticipated to continue to be highly competitive, particularly with
continuing robust commodity prices. Pengrowth will pursue innovative mechanisms to add value to
transactions. Pengrowth will also focus on the enhancement of value of Pengrowths legacy assets
through efficient operations, effective application of technology and increased reliance upon
exploitation and development drilling to add reserves. In the present environment we anticipate
that there may be consolidation within the oil and natural gas industry. Pengrowth will continue to
be opportunistic in the examination of potential mergers and acquisitions. During early 2005,
Pengrowth completed the acquisition of Crispin Energy Inc. using both its Class A and Class B trust
units as currency.
One of our focuses has been to attract, retain and develop significant technical and management
expertise. I am pleased to announce several recent changes to the senior management team reflecting
Pengrowths commitment to operational excellence, effective strategic planning and the creation of
value through future development of Pengrowths strong suite assets.
Mr. Larry B. Strong has been appointed Vice President, Geosciences and an Officer
of Pengrowth Corporation. He will focus on exploitation and exploration
opportunities on Pengrowths existing land base and will add value in conjunction
with new acquisitions. Mr. Strong is a highly qualified geologist with both
solid management and business experience. Mr. Strong brings over 20 years
experience in Earth Sciences beginning his career as a Petroleum
Geologist/Geophysicist with Chevron Canada Resources. Prior to joining Pengrowth
Mr. Strong served in senior geosciences roles at NCE Resources Group and Waterous
& Co. and most recently served as an Officer and Vice President of Geosciences at
Petrofund Corporation. Mr. Strong holds a Bachelor of Science (Specialist) in
Geology and a Minor in Computer Science from Brandon University.
- 6 - PENGROWTH ENERGY TRUST
Mr. William Christensen who is presently consulting to Pengrowth will become
Vice President, Strategic Planning and Reservoir Exploitation and an Officer of
Pengrowth Corporation upon Canadian immigration approval. Mr. Christensens
responsibilities will include a comprehensive review of past acquisitions and the
effectiveness of Pengrowths exploitation and development programs as a basis for
planning effective future initiatives to enhance unitholder value. Mr. Christensen
has over 25 years in the energy sector including broad international experience,
both in operations and the completion of transactions. Prior to a recent
relocation to Houston, Mr. Christensen served as Vice President Planning with
Northrock Resources. Before joining Northrock, Mr. Christensen served in several
capacities during a long and varied career with Unocal Corporation. Mr.
Christensen holds a Masters in Business Administration from UCLA and a Bachelor of
Science in Mechanical Engineering from Oregon State University.
Mr. James Causgrove has been appointed Vice President, Production and Operations
and an Officer of Pengrowth Corporation. He will have broad responsibilities for
the operating activities of Pengrowth Corporation and Pengrowths ongoing
development and growth. Mr. Causgrove has over 25 years of experience with
Chevron, where he most recently held the position of Manager, New Growth
Opportunities Group and Senior Vice President and Chief Operating Officer of
Central Alberta Midstream. Mr. Causgrove has a broad operational background in
drilling, production engineering and midstream areas across the Western Canadian
Sedimentary Basin as well as significant experience in the property divestiture
market and the analysis of potential corporate and acquisitions and divestitures,
including the recent sale of Central Alberta Midstream. Mr. Causgrove holds a
Bachelor of Science in Chemical Engineering from the University of Alberta and is
a registered professional engineer.
Lynn Kis has resigned as Vice-President, Engineering. Ms. Kis made significant contributions to
Pengrowths growth and development in her eight year career with Pengrowth and I would like to take
this opportunity to thank Ms. Kis for her valued efforts on behalf of the trust and its
unitholders.
I heartily welcome Mr. Strong, Mr. Christensen and Mr. Causgrove to Pengrowth. I am very proud of
the work of our Pengrowth team, both in Calgary and in our field offices, and their continued
commitment to Pengrowth Energy Trust. Pengrowth continues to enjoy the support of a strong and
engaged Board of Directors with a broad base of experience. The board has directed considerable
attention to both the substance and form of active corporate governance. Mr. William R. Stedman
recently announced his retirement from the board in the face of other demands on his time. We
appreciate Mr. Stedmans contributions to Pengrowth and we will actively seek additional members to
the board in the coming months.
Pengrowth remains committed to providing unitholders with stable distributions, superior value and
long term growth and I look forward to our continued success in the quarters to come.
James S. Kinnear
Chairman, President and Chief Executive Officer
November 3, 2005
For
further information about Pengrowth, please visit our website
www.pengrowth.com or contact:
Investor Relations, Calgary Telephone: (403) 233-0224 Toll Free: 1-800-223-4122 Facsimile: (403)
294-0051
Investor Relations, Toronto Telephone: (416) 362-1748 Toll Free: 1-888-744-1111
Facsimile: (416) 362-8191
PENGROWTH ENERGY TRUST - 7 -
Managements Discussion and Analysis
The following discussion and analysis of financial results is based on information available to
November 3, 2005 and should be read in conjunction with:
|
|
|
The MD&A and the audited consolidated financial statements for the years ended December 31,
2004 and 2003; and |
|
|
|
|
The interim unaudited consolidated financial statements for the nine months ended September
30, 2005. |
Note Regarding Forward-Looking Statements
This discussion and analysis contains forward-looking statements. These statements relate to
future events or our future performance. In some cases, you can identify forward-looking
statements by terminology such as may, will, should, expect, plan, anticipate,
believe, estimate, predict, potential, continue, or the negative of these terms or other
comparable terminology. These statements are only predictions. A number of factors, including the
business risks discussed below, may cause actual results to vary materially from these estimates.
Actual events or results may differ materially. In addition, this discussion contains
forward-looking statements attributed to third party industry sources. Readers should not place
undue reliance on these forward-looking statements.
When converting natural gas to equivalent barrels of oil within this discussion, Pengrowth uses the
international standard of 6 thousand cubic feet (mcf) to one barrel of oil equivalent (boe).
Production volumes and revenues are reported on a gross basis (before royalties) in accordance with
Canadian practice. All amounts are stated in Canadian dollars unless otherwise specified.
Non-GAAP Financial Measures
This discussion and analysis refers to certain financial measures that are not determined in
accordance with Canadian Generally Accepted Accounting Principals (GAAP). These measures do not
have standardized meanings and may not be comparable to similar measures presented by other trusts
or corporations. Measures such as distributable cash, distributable cash per trust unit and
operating netbacks do not have standardized meanings prescribed by GAAP. During the second quarter
of 2005, Pengrowths withholding practice and presentation of distributable cash changed. The
impact of the new practice is discussed in the Distributions and Taxability of Distributions
section of this report, while the remaining nonGAAP measures are determined by reference to our
financial statements. We discuss these measures because we believe that they facilitate the
understanding of the results of our operations and financial position.
Overview
For the third consecutive quarter, Pengrowth achieved record net income and cash generated from
operations in the third quarter of 2005. Also during the third quarter, Pengrowth divested certain
non-core oil and natural gas properties for proceeds of approximately $19 million.
Continued strength in commodity prices and additional production from the Swan Hills Unit No. 1 and
Crispin Energy Inc. acquisitions, which closed on February 28, 2005 and April 29, 2005,
respectively, had a favourable impact on 2005 third quarter results relative to the third quarter
of 2004.
Net Income
Net income for the third quarter of 2005 was $100.2 million ($0.63 per trust unit) compared to
$51.3 million ($0.38 per trust unit) for the third quarter of 2004. For the first nine months of
2005 Pengrowth recorded net income of $209.7 million ($1.34 per trust unit) compared to $122.6
million ($0.93 per trust unit) for the first nine months of 2004. The increase in net income for
the third quarter of 2005 compared to the same period last year is due mainly to a 37 percent
increase in average commodity prices.
Production
Production for the third quarter of 2005 decreased approximately two percent compared to the
third quarter of 2004. Natural production declines more than offset the increased production
associated with ongoing development activities, the increased working interest in Swan Hills Unit
No. 1, the Crispin acquisition and an additional shipment of condensate from the Sable Offshore
Energy Project (SOEP). Third quarter production increased approximately two percent versus the
second quarter of 2005 largely as a result of increased gas production at SOEP and Judy Creek.
On a year-to-date basis, production for the nine months ended September 30, 2005 was 12 percent
higher than the same period last year, primarily due to the Murphy, Swan Hills Unit No. 1 and
Crispin acquisitions and the contributions from ongoing development activities.
- 8 - PENGROWTH ENERGY TRUST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
Daily Production |
|
Sept 30, 2005 |
|
Jun 30, 2005 |
|
Sept 30, 2004 |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
Light crude oil (bbls) |
|
|
20,660 |
|
|
|
20,906 |
|
|
|
20,735 |
|
|
|
20,670 |
|
|
|
21,051 |
|
Heavy oil (bbls) |
|
|
5,405 |
|
|
|
5,641 |
|
|
|
6,507 |
|
|
|
5,695 |
|
|
|
2,799 |
|
Natural gas (mcf) |
|
|
164,288 |
|
|
|
153,423 |
|
|
|
166,618 |
|
|
|
158,426 |
|
|
|
140,133 |
|
Natural gas liquids (bbls) |
|
|
5,448 |
|
|
|
5,870 |
|
|
|
5,139 |
|
|
|
5,885 |
|
|
|
5,246 |
|
|
Total boe per day |
|
|
58,894 |
|
|
|
57,988 |
|
|
|
60,151 |
|
|
|
58,654 |
|
|
|
52,452 |
|
|
Third quarter 2005 light crude oil production volumes remained
relatively flat versus both the second quarter of 2005 and the
third quarter of 2004. The Swan Hills Unit No. 1 and Crispin
acquisitions, in addition to development activities over the past
year, combined to offset natural production declines.
Heavy oil production decreased 17 percent in the third quarter
of 2005 compared to the same period in 2004 and
approximately four percent from the second quarter of 2005.
The decrease is due to natural production declines, particularly
at Tangleflags and Bodo.
Natural gas production remained unchanged in the third quarter
of 2005 compared to the third quarter of 2004. Incremental volumes from development activities,
including the Monogram area, as
well as the Crispin acquisition largely offset the impact of natural production declines. Natural
gas production was up seven percent
versus the second quarter of 2005 resulting from additional volumes from SOEP and Judy Creek.
Natural gas liquids (NGL) production increased by six percent in the third quarter of 2005 over the
same quarter of 2004 while
decreasing seven percent versus the second quarter of 2005. The fluctuation in NGL sales is due in
part to the timing of condensate
sales from SOEP.
Prices
Pengrowths average commodity price per boe for the third quarter of 2005, after the impact of
hedging, was 37 percent higher than
the third quarter of 2004 and 17 percent higher than the second quarter of 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average realized prices Cdn$ |
|
Three months ended |
|
Nine months ended |
(after the impact of hedging) |
|
Sept 30, 2005 |
|
Jun 30, 2005 |
|
Sept 30, 2004 |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
Light crude oil (per bbl) |
|
$ |
63.95 |
|
|
$ |
56.44 |
|
|
$ |
45.15 |
|
|
$ |
58.31 |
|
|
$ |
42.71 |
|
Heavy oil (per bbl) |
|
|
47.74 |
|
|
|
30.32 |
|
|
|
37.96 |
|
|
|
33.82 |
|
|
|
36.25 |
|
Natural gas (per mcf) |
|
|
8.57 |
|
|
|
7.34 |
|
|
|
6.36 |
|
|
|
7.61 |
|
|
|
6.72 |
|
Natural gas liquids (per bbl) |
|
|
57.75 |
|
|
|
50.03 |
|
|
|
42.33 |
|
|
|
52.59 |
|
|
|
40.21 |
|
|
Total per boe |
|
$ |
56.07 |
|
|
$ |
47.79 |
|
|
$ |
40.90 |
|
|
$ |
49.66 |
|
|
|
$41.05 |
|
|
Pengrowths average realized light crude oil price, net of hedging losses, increased 42 percent
in the third quarter of 2005 and 37 percent for the first nine months compared to the same periods
of 2004. The West Texas Intermediate (WTI) benchmark price increased 44 percent in the third
quarter of 2005 compared to the same period last year. This was partially offset by the
appreciation in the Canadian dollar relative to the U.S. dollar. Pengrowths average realized
light crude oil price for the third quarter of 2005, net of hedging losses, increased 13 percent
compared to the second quarter of 2005.
Pengrowths average realized heavy oil price increased 26 percent in the third quarter of 2005
compared with the third quarter of 2004 and 57 percent versus the second quarter of 2005. The
year-to-date average realized heavy oil price for the first nine months of 2005 compared to the
same period of 2004 decreased seven percent largely as a result of widening in the light/heavy
price differential and the increasing cost of diluent used to process the oil for transport.
PENGROWTH ENERGY TRUST - 9 -
Pengrowths average realized natural gas price, net of hedging losses, for the third quarter of
2005 increased 35 percent to $8.57 per mcf compared to $6.36 per mcf over the same period last
year, while also increasing 17 percent versus the second quarter of 2005 price of $7.34 per mcf.
Pengrowths average natural gas price increased year over year by 13 percent to $7.61 per mcf. By
comparison on a year-to-date basis, the NYMEX last day average price increased by 23 percent while
the AECO monthly spot price increased 11 percent. Certain fixed price gas contracts which were
associated with the Murphy acquisition also partially offset the increase in market prices.
Price Risk Management Program
Pengrowth uses forward price swap and option contracts to manage its exposure to commodity
price fluctuations, to provide a measure of stability to our monthly cash distributions and to
partially secure returns on new acquisitions. On a combined basis, oil and gas hedging losses were
$21.6 million ($3.99 per boe) for the third quarter and $38.1 million ($2.38 per boe) for the first
nine months of 2005 compared to $18.9 million ($3.42 per boe) and $46.4 million ($3.23 per boe) for
the respective periods of 2004.
With the continued strength in crude oil prices in the third quarter, Pengrowth realized a net
hedging loss of $19.8 million ($10.42 per bbl) on crude oil price swap transactions, compared to a
loss of $17.9 million ($9.38 per bbl) in the third quarter of 2004. On a year-to-date basis,
Pengrowth has realized a net hedging loss of $37.4 million ($6.63 per bbl) for the first nine
months of 2005 on crude oil price swap transactions, compared to a net hedging loss of $37.8
million ($6.55 per bbl) for the first nine months of 2004. In the third quarter of 2005, Pengrowth
realized a net hedging loss of $1.8 million ($0.12 per mcf) related to natural gas financial swap
contracts, compared to a net hedging loss of $1.0 million ($0.07 per mcf) for the same period last
year. On a year-to-date basis, Pengrowth has realized a net hedging loss of $0.7 million ($0.02
per mcf) in the first nine months of 2005 related to natural gas financial swap contracts, compared
to a net hedging loss of $8.6 million ($0.22 per mcf) for the same period of last year.
In conjunction with the Murphy acquisition on May 31, 2004, Pengrowth assumed certain fixed price
natural gas sales contracts associated with the Murphy reserves. Under these contracts, Pengrowth
is obligated to sell 3,886 mmbtu per day, until April 30, 2009 at an average contract price of Cdn
$2.27 per mmbtu. As required by GAAP, the fair value of the contract was recognized as a liability
based on the mark-to-market value at May 31, 2004. The liability at September 30, 2005 of $19.7
million will continue to be drawn down and recognized in income as the contract is settled. As
this is a non-cash component of income, it is not included in the calculation of distributable
cash. At September 30, 2005, the mark-to-market value of Pengrowths fixed price physical sales
contract represented a potential loss of $37.8 million.
In addition, the following table lists the hedging contracts Pengrowth has in place at September
30, 2005.
Crude Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
|
|
|
|
Price |
Remaining Term |
|
(bbl per day) |
|
Reference Point |
|
per bbl |
|
2005 - Financial |
|
|
|
|
|
|
|
|
|
|
|
|
Oct 1, 2005 - Dec 31, 2005 |
|
|
10,000 |
|
|
WTI (1) |
|
$54.39 Cdn |
|
2006 - Financial |
|
|
|
|
|
|
|
|
|
|
|
|
Jan 1, 2006 - Dec 31, 2006 |
|
|
4,000 |
|
|
WTI (1) |
|
$64.08 Cdn |
- 10 - PENGROWTH ENERGY TRUST
Natural Gas
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
|
|
Price |
Remaining Term |
|
(mmbtu per day) |
|
Reference Point |
|
per mmbtu |
|
2005 - Financial |
|
|
|
|
|
|
|
|
Oct 1, 2005 - Dec 31, 2005 |
|
|
11,000 |
|
|
Tetco M3 (1) |
|
$9.27 Cdn |
Oct 1, 2005 - Dec 31, 2005 |
|
|
5,000 |
|
|
Transco Z6 (1) |
|
$10.11 Cdn |
Oct 1, 2005 - Dec 31, 2005 |
|
|
2,500 |
|
|
NGI Chicago (1) |
|
$9.41 Cdn |
Oct 1, 2005 - Dec 31, 2005 |
|
|
2,500 |
|
|
Nymex (1) |
|
$14.07 Cdn |
Oct 1, 2005 - Dec 31, 2005 |
|
|
2,370 |
|
|
AECO |
|
$8.35 Cdn |
|
2006 - Financial |
|
|
|
|
|
|
|
|
Jan 1, 2006 - Dec 31, 2006 |
|
|
2,500 |
|
|
Transco Z6 (1) |
|
$10.63 Cdn |
Jan 1, 2006 - Dec 31, 2006 |
|
|
2,370 |
|
|
AECO |
|
$8.03 Cdn |
Jan 1, 2006 - Mar 31, 2006 |
|
|
2,500 |
|
|
Nymex (1) |
|
$14.56 Cdn |
|
(1) Associated Cdn$/US$ foreign exchange rate has been fixed. |
At September 30, 2005, the mark-to-market value of Pengrowths commodity hedges represented a
potential loss of $64.2 million which consisted of a loss of $25.0 million on natural gas contracts
and $39.2 million for crude oil contracts.
Royalties
Royalties, including crown, freehold and overriding royalties, were 19 percent of oil and gas
sales in the third quarter of 2005, compared to 22 percent in the third quarter of 2004 and 19
percent in the second quarter of 2005. The decrease in royalty rate from the third quarter of 2004
to the third quarter of 2005 is primarily due to the non-recurring nature of a $4.4 million
adjustment for Judy Creek royalties that was included in the third quarter of 2004. For the first
nine months, royalties were 18 percent and 19 percent in 2005 and 2004, respectively.
Operating Costs
Operating costs were $57.4 million ($10.59 per boe) for the third quarter of 2005, compared to
$47.2 million ($8.53 per boe) for the third quarter of 2004 and $50.4 million ($9.56 per boe) for
the second quarter of 2005. For the nine months ended September 30, 2005, operating costs were
$156.9 million ($9.80 per boe) compared to $117.1 million ($8.15 per boe) for the same period of
2004. The Murphy, Swan Hills Unit No. 1 and Crispin acquisitions, higher utility and oilfield
services costs and the expense associated with the trust unit award plan contributed to higher
operating costs in total as well as on a per boe basis compared to the third quarter of 2004 and
the second quarter of 2005.
Heavy oil operating costs in 2005 have been impacted by a $2.1 million adjustment related to a
prior period expense on a non-operated property and higher costs associated with rising natural gas
costs at thermal recovery operations.
Injectants for Miscible Floods
During the third quarter of 2005, Pengrowth purchased and capitalized $6.9 million of
injectants and amortized $6.0 million against third quarter net income and distributable cash,
compared to $3.0 million and $4.7 million, respectively, in the third quarter of 2004 and $5.7
million and $6.0 million in the second quarter of 2005. On a year-to-date basis, Pengrowth has
purchased and capitalized $20.2 million of injectants and amortized $17.3 million, compared to
$12.2 million and $14.7 million, respectively, in the same period last year. The increase in
injectant costs year over year is due mainly to Pengrowths increased working interest at Swan
Hills Unit
No. 1. The majority of ethane and natural gas volumes injected at Judy Creek are proprietary
volumes produced from Judy Creek and the Swan Hills area. Revenue is not recorded for volumes that
are produced and subsequently re-injected.
At September 30, 2005, the balance of unamortized injectant costs was $27.9 million.
PENGROWTH ENERGY TRUST - 11 -
Operating Netbacks
There is no standardized measure of operating netbacks and therefore, operating netbacks, as
presented below, may not be comparable to similar measures presented by other companies. Certain
assumptions have been made in allocating operating expenses, other production income, other income
and royalty injection credits between light crude oil, heavy oil, natural gas and natural gas
liquids production.
Operating netbacks during the quarter increased by approximately 49 percent reflecting the overall
increase in oil and gas prices, net of hedging, offset partially by the increase in operating costs
per boe.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
Combined Netbacks ($ per boe) |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
|
|
|
|
Sales price |
|
$ |
56.07 |
|
|
$ |
40.90 |
|
|
$ |
49.66 |
|
|
$ |
41.05 |
|
Other production income |
|
|
0.13 |
|
|
|
0.02 |
|
|
|
0.15 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
56.20 |
|
|
|
40.92 |
|
|
|
49.81 |
|
|
|
41.23 |
|
Processing and other income |
|
|
0.39 |
|
|
|
0.53 |
|
|
|
0.86 |
|
|
|
0.70 |
|
Royalties |
|
|
(10.60 |
) |
|
|
(8.88 |
) |
|
|
(9.11 |
) |
|
|
(7.73 |
) |
Operating costs |
|
|
(10.59 |
) |
|
|
(8.51 |
) |
|
|
(9.80 |
) |
|
|
(8.18 |
) |
Transportation costs |
|
|
(0.36 |
) |
|
|
(0.44 |
) |
|
|
(0.35 |
) |
|
|
(0.40 |
) |
Amortization of injectants |
|
|
(1.10 |
) |
|
|
(0.85 |
) |
|
|
(1.08 |
) |
|
|
(1.02 |
) |
|
|
|
|
|
Operating netback |
|
$ |
33.94 |
|
|
$ |
22.77 |
|
|
$ |
30.33 |
|
|
$ |
24.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
Light Crude Netbacks ($ per
bbl) |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
|
|
|
|
Sales price |
|
$ |
63.95 |
|
|
$ |
45.15 |
|
|
$ |
58.31 |
|
|
$ |
42.71 |
|
Other production income |
|
|
0.37 |
|
|
|
0.06 |
|
|
|
0.44 |
|
|
|
0.44 |
|
|
|
|
|
|
|
|
|
64.32 |
|
|
|
45.21 |
|
|
|
58.75 |
|
|
|
43.15 |
|
Processing and other income |
|
|
0.64 |
|
|
|
0.25 |
|
|
|
0.51 |
|
|
|
0.45 |
|
Royalties |
|
|
(11.03 |
) |
|
|
(10.29 |
) |
|
|
(9.39 |
) |
|
|
(6.96 |
) |
Operating costs |
|
|
(12.85 |
) |
|
|
(9.38 |
) |
|
|
(11.58 |
) |
|
|
(9.34 |
) |
Transportation costs |
|
|
(0.29 |
) |
|
|
(0.23 |
) |
|
|
(0.30 |
) |
|
|
(0.23 |
) |
Amortization of injectants |
|
|
(3.14 |
) |
|
|
(2.46 |
) |
|
|
(3.07 |
) |
|
|
(2.55 |
) |
|
|
|
|
|
Operating netback |
|
$ |
37.65 |
|
|
$ |
23.10 |
|
|
$ |
34.92 |
|
|
$ |
24.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
Heavy Oil Netbacks ($ per
bbl) |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
|
|
|
|
Sales price |
|
|
47.74 |
|
|
|
37.96 |
|
|
|
33.82 |
|
|
|
36.25 |
|
|
Processing and other income |
|
|
(0.83 |
) |
|
|
|
|
|
|
0.24 |
|
|
|
|
|
Royalties |
|
|
(8.00 |
) |
|
|
(5.55 |
) |
|
|
(5.03 |
) |
|
|
(5.35 |
) |
Operating costs |
|
|
(16.30 |
) |
|
|
(11.20 |
) |
|
|
(16.95 |
) |
|
|
(10.14 |
) |
|
|
|
|
|
Operating netback |
|
$ |
22.61 |
|
|
$ |
21.21 |
|
|
$ |
12.08 |
|
|
$ |
20.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
Natural Gas Netbacks ($ per
mcf) |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
|
|
|
|
Sales price |
|
$ |
8.57 |
|
|
$ |
6.36 |
|
|
$ |
7.61 |
|
|
$ |
6.72 |
|
|
Processing and other income |
|
|
0.09 |
|
|
|
0.16 |
|
|
|
0.24 |
|
|
|
0.19 |
|
Royalties |
|
|
(1.47 |
) |
|
|
(1.27 |
) |
|
|
(1.36 |
) |
|
|
(1.22 |
) |
Operating costs |
|
|
(1.31 |
) |
|
|
(1.22 |
) |
|
|
(1.19 |
) |
|
|
(1.15 |
) |
Transportation costs |
|
|
(0.09 |
) |
|
|
(0.13 |
) |
|
|
(0.09 |
) |
|
|
(0.11 |
) |
|
|
|
|
|
Operating netback |
|
$ |
5.79 |
|
|
$ |
3.90 |
|
|
$ |
5.21 |
|
|
$ |
4.43 |
|
|
|
|
|
|
- 12 - PENGROWTH ENERGY TRUST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
NGL Netbacks ($ per bbl) |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
Sept 30, 2005 |
|
Sept 30, 2004 |
|
|
|
|
|
Sales price |
|
$ |
57.75 |
|
|
$ |
42.33 |
|
|
$ |
52.59 |
|
|
$ |
40.21 |
|
|
Royalties |
|
|
(20.57 |
) |
|
|
(14.19 |
) |
|
|
(16.27 |
) |
|
|
(14.07 |
) |
Operating costs |
|
|
(10.13 |
) |
|
|
(8.07 |
) |
|
|
(8.65 |
) |
|
|
(7.95 |
) |
Transportation costs |
|
|
|
|
|
|
(0.10 |
) |
|
|
|
|
|
|
(0.10 |
) |
|
|
|
|
|
Operating netback |
|
$ |
27.05 |
|
|
$ |
19.97 |
|
|
$ |
27.67 |
|
|
$ |
18.09 |
|
|
|
|
|
|
General and Administrative
General and administrative expenses (G&A) were $7.6 million ($1.40 per boe) in the third
quarter of 2005 compared to $6.1 million ($1.11 per boe) for the third quarter of 2004. For the
first nine months of 2005, G&A was $21.8 million ($1.36 per boe) compared to $17.5 million ($1.22
per boe) for the same period last year. Included in the third quarter of 2005 G&A is $0.6 million
of non-cash compensation costs related to trust unit rights and deferred entitlement trust units
(see note 1 to consolidated financial statements) compared to $0.6 million for the third quarter of
2004. The year-to-date non-cash component is $2.1 million compared to $1.9 million for the first
nine months of 2004. Excluding the non-cash component of G&A, 2005 year-to-date G&A has increased
over 2004 levels by $4.1 million mainly due to the addition of personnel and office space required
to manage the Murphy assets as well as the expense associated with the trust unit award plan.
Management Fees
Management fees were $3.5 million ($0.65 per boe) for the third quarter of 2005 compared to $2.5
million ($0.45 per boe) for the third quarter of 2004. For the first nine months of 2005,
management fees were $11.6 million ($0.72 per boe) for 2005 compared to $10.3 million ($0.72 per
boe) for the same period in 2004.
Management fees recorded in the third quarter of 2005 include an accrual for estimated performance
fees of $1.9 million. Under the current management agreement, which came into effect July 1, 2003,
the manager will earn a performance fee if Pengrowth trust unit total returns exceed eight percent
per annum on a three year rolling average basis. The maximum fees payable, including the
performance fee, is limited to 80 percent of the fees that would otherwise have been payable under
the previous management agreement for the first three years and 60 percent for the subsequent three
years. Management fees have increased from 2004 mainly due to higher commodity prices that have
increased cash generated from operations.
Interest
Interest expense decreased to $5.6 million in the third quarter of 2005 compared to $8.7
million for the third quarter of 2004 primarily due to reduced debt level. For the first nine
months of 2005, interest expense was $16.8 million compared to $20.6 million for the same period of
2004. Interest expense includes $1.2 million of fees on a year-to-date basis related to the
amortization of U.S. debt issue costs and imputed interest on the note payable to Emera Offshore
Incorporated.
Depletion and Depreciation
Depletion and depreciation costs increased to $73.5 million in the third quarter of 2005
compared to $69.3 million in the third quarter of 2004. For the first nine months of 2005,
depletion and depreciation costs were $213.6 million compared to $177.9 million in the first nine
months of 2004. On a per boe basis, depletion and depreciation costs have increased to $13.57 per
boe in the third quarter of 2005 compared to $12.53 per boe in the third quarter of 2004, and
$13.34 per boe on a year-to-date basis, compared to $12.38 per boe in the first nine months of
2004. The increase is mainly attributable to recent purchases, including the Murphy acquisition in
May 2004. With the sustained strength in commodity prices in recent years, the higher cost of
acquiring oil and gas properties has increased the depletion rate per boe produced.
Distributions and Taxability of Distributions
Pengrowth generated $162.0 million ($1.02 per average trust unit outstanding) of distributable
cash related to third quarter 2005 operations, compared to $104.3 million ($0.77 per average trust
unit outstanding) in the third quarter of 2004. For the first nine months of 2005, Pengrowth
generated $423.9 million distributable cash compared to $296.2 million in the first nine months of
2004. Distributions were $326.1 million for 2005 (2004 $266.6 million) and as a percentage of
cash generated from operations (payout ratio) represent approximately 77 percent (2004 86
percent). Pengrowths previous practice had been to withhold approximately 10 percent of cash
available for distribution to repay debt and/or contribute to capital spending. For the third
quarter of 2005, the Board of Directors resolved to maintain the existing level of distributions at
$0.23 per trust unit. Given the level of current commodity prices, this action has resulted in an
increase in cash available to help fund Pengrowths capital expenditures. Pengrowth is pleased to
announce an increase in monthly distributions to $0.25 per trust unit for the fourth quarter of
2005 beginning with the December 15, 2005 distribution.
PENGROWTH ENERGY TRUST - 13 -
The following is a summary of recent monthly distributions and future key dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ex-Distribution |
|
|
|
Distribution |
|
Distribution Amount |
|
US $ |
Date * |
|
Record Date |
|
Payment Date |
|
per Trust Unit |
|
Amount** |
|
December 29, 2004 |
|
December 31, 2004 |
|
January 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
December 30, 2004 (U.S.) |
|
January 3, 2005 (U.S.) |
|
|
|
|
|
|
|
|
|
|
January 28, 2005 |
|
February 1, 2005 |
|
February 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
February 25, 2005 |
|
March 1, 2005 |
|
March 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
March 30, 2005 |
|
April 1, 2005 |
|
April 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
April 28, 2005 |
|
May 2, 2005 |
|
May 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.18 |
|
May 30, 2005 |
|
June 1, 2005 |
|
June 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.18 |
|
May 27, 2005 (U.S.) |
|
May 31, 2005 (U.S.) |
|
|
|
|
|
|
|
|
|
|
June 28, 2005 |
|
June 30, 2005 |
|
July 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
July 27, 2005 |
|
July 29, 2005 |
|
August 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
July 28, 2005 (U.S.) |
|
August 1, 2005 (U.S.) |
|
|
|
|
|
|
|
|
|
|
August 29, 2005 |
|
August 31, 2005 |
|
September 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
September 28, 2005 |
|
September 30, 2005 |
|
October 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
September 29, 2005 (U.S.) |
|
October 3, 2005 (U.S.) |
|
|
|
|
|
|
|
|
|
|
October 28, 2005 |
|
November 1, 2005 |
|
November 15, 2005 |
|
$ |
0.23 |
|
|
$ |
0.19 |
|
November 29, 2005 |
|
December 1, 2005 |
|
December 15, 2005 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
To benefit from the monthly cash distribution, unitholders must purchase or hold trust
units prior to the ex-distribution date. |
|
** |
|
Before applicable withholding taxes. |
Cash distributions are paid to unitholders on the 15th day of the second month following
the month of production. Pengrowth paid $0.69 per trust unit as cash distributions during the
third quarter of 2005.
There is no standardized measure of distributable cash and therefore distributable cash, as
reported by Pengrowth, may not be comparable to similar measures presented by other trusts. In
conjunction with the change to Pengrowths withholding practice, distributable cash as presented
below may not be comparable to previous disclosures. The following table provides a reconciliation
of distributable cash for the three and nine month periods ended September 30, 2005 and 2004.
- 14 - PENGROWTH ENERGY TRUST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended Sept 30 |
|
Nine months ended Sept 30 |
($thousands, except per unit amounts) |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Cash generated from operations |
|
|
158,976 |
|
|
|
116,258 |
|
|
|
421,482 |
|
|
|
310,880 |
|
Change in non-cash operating working capital |
|
|
(789 |
) |
|
|
(9,857 |
) |
|
|
(1,840 |
) |
|
|
(9,749 |
) |
Change in deferred injectants |
|
|
892 |
|
|
|
(1,663 |
) |
|
|
2,854 |
|
|
|
(2,482 |
) |
Change in remediation trust funds |
|
|
(272 |
) |
|
|
(276 |
) |
|
|
(803 |
) |
|
|
(949 |
) |
Change in deferred charges |
|
|
2,818 |
|
|
|
(473 |
) |
|
|
2,028 |
|
|
|
(1,420 |
) |
Other |
|
|
384 |
|
|
|
315 |
|
|
|
139 |
|
|
|
(60 |
) |
|
Distributable cash |
|
|
162,009 |
|
|
|
104,304 |
|
|
|
423,860 |
|
|
|
296,220 |
|
|
|
Allocation of Distributable Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash withheld |
|
|
52,156 |
|
|
|
10,434 |
|
|
|
97,741 |
|
|
|
29,625 |
|
Distributions paid or declared |
|
|
109,853 |
|
|
|
93,870 |
|
|
|
326,119 |
|
|
|
266,595 |
|
|
Distributable cash |
|
|
162,009 |
|
|
|
104,304 |
|
|
|
423,860 |
|
|
|
296,220 |
|
|
Distributable cash per unit |
|
|
1.02 |
|
|
|
0.77 |
|
|
|
2.71 |
|
|
|
2.24 |
|
Distributions paid or declared per unit |
|
|
0.69 |
|
|
|
0.67 |
|
|
|
2.07 |
|
|
|
1.94 |
|
Payout ratio |
|
|
69 |
% |
|
|
81 |
% |
|
|
77 |
% |
|
|
86 |
% |
|
At this time, Pengrowth anticipates that approximately 75 to 80 percent of 2005 distributions
will be taxable to Canadian residents; this estimate is subject to change depending on a number of
factors including, but not limited to, the level of commodity prices, acquisitions, dispositions
and new equity offerings.
Liquidity and Capital Resources
Pengrowths long-term debt at September 30, 2005 was $422.2 million, compared to $345.4 million
at December 31, 2004 and $355.3 million at September 30, 2004. During the third quarter,
Pengrowth received $18.6 million of proceeds from the sale of non-operated oil and natural gas
properties. Year-to-date capital expenditures, excluding acquisitions, of $114.5 million were
financed through the combination of retained cash of $97.7 million and $32.0 million of proceeds
from the exercise of trust unit rights and options.
Approximately $295 million of a $470 million revolving credit facility and a $35 million demand
operating line of credit remain unutilized at September 30, 2005. The remainder of Pengrowths
debt outstanding at the end of the third quarter 2005 is U.S. dollar denominated fixed rate term
debt, details of which are provided in Note 2 to the financial statements. Due to the change in
the value of the U.S. dollar relative to the Canadian dollar, an unrealized gain of $12.9 million
has been recorded in the quarter ended September 30, 2005 ($8.2 million year-to-date) on the U.S.
dollar denominated debt. Since the U.S. $200 million denominated debt was issued in April 2003, the
Canadian dollar has strengthened significantly, resulting in a cumulative unrealized gain of $58.0
million.
At the end of the third quarter of 2005, Pengrowth was capitalized with 12 percent net debt
(long-term debt less working capital) and 88 percent equity, as compared with 20 percent debt and
80 percent equity at the end of the third quarter of 2004 (based on quarter-end market
capitalization). The Trusts net debt to annualized cash flow from operations was approximately
0.8 times at the end of the third quarter of 2005, as compared to 1.7 times at the end of the third
quarter of 2004.
As of November 2, 2005, the number of trust units outstanding was approximately:
|
|
|
|
|
|
|
(000s) |
|
Class A trust units |
|
|
77,524 |
|
Class B trust units |
|
|
81,817 |
|
Undeclared trust units |
|
|
43 |
|
|
Total |
|
|
159,384 |
|
|
PENGROWTH ENERGY TRUST - 15 -
As of November 2, 2005, the number of trust unit options, rights and deferred entitlement trust
units was approximately:
|
|
|
|
|
|
|
(000s) |
|
Trust unit options |
|
|
357 |
|
Rights incentive options. |
|
|
1,554 |
|
Deferred entitlement trust units
|
|
|
150 |
|
|
Acquisitions and Dispositions
During the third quarter of 2005, Pengrowth received approximately $19 million of proceeds from
the sale of non-core oil and natural gas properties with associated production of approximately 200
boe per day. Due to the timing of the sales, production from these properties is included in the
third quarter of 2005 results.
Prior to the third quarter, Pengrowth successfully completed the acquisition of an additional 11.89
percent working interest in the Swan Hills Unit No. 1 property for $87 million which was funded
through additional debt. Pengrowth also closed the acquisition of all of the issued and
outstanding shares of Crispin Energy Inc. on April 29, 2005 by issuing approximately 677,000 Class
A trust units and approximately 3,552,000 Class B trust units, valued at $88 million, and assuming
debt of approximately $20 million.
Capital Spending
Capital expenditures for the nine months ending September 30, 2005 totaled $114.5 million
including $24.6 million at Judy Creek, $18.5 million at SOEP, $7.8 million at Buick, $5.5 million
at Swan Hills Unit No. 1, $4.9 million at Weyburn, and $4.5 million at Squirrel.
Pengrowth currently expects to spend a total of approximately $70 million on development activities
in the remaining quarter of 2005 for a total revised capital program of approximately $185 million
for full year 2005. The revised capital plan represents a decrease of $30 million or 14 percent
from the previous guidance of $215 million. The reduction in the 2005 capital program reflects the
impact of limited rig availability and weather related delays in planned development activities
which have resulted in deferral of related expenditures to the 2006 capital year. This includes
development activity planned at Pengrowths operated Judy Creek and in Northeast British Columbia
properties, as well as additional development drilling and facilities at the non-operated SOEP,
Swan Hills Unit No. 1, Quirk Creek and Weyburn properties. Capital expenditures year-to-date have
been fully funded from retained cash and proceeds from trust unit rights and options exercised.
Summary of Quarterly Results
The following table is a summary of quarterly results for 2003, 2004 and the first three
quarters of 2005. Net income and net income per trust unit for the third quarter of 2005 increased
over the second quarter of 2005, mainly due to a 19 percent increase in average per boe price
realized as well as a $16 million change in unrealized foreign exchange gain partly offset by
increased utility costs and the expense associated with the trust unit award plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Oil and gas sales ($000s) |
|
|
239,913 |
|
|
|
253,189 |
|
|
|
304,484 |
|
Net income ($000s) |
|
|
56,314 |
|
|
|
53,106 |
|
|
|
100,243 |
|
Net income per unit ($) |
|
|
0.37 |
|
|
|
0.34 |
|
|
|
0.63 |
|
Net income per unit diluted ($) |
|
|
0.37 |
|
|
|
0.34 |
|
|
|
0.63 |
|
Distributable cash ($000s) |
|
|
127,804 |
|
|
|
134,047 |
|
|
|
162,009 |
|
Actual distributions paid or declared per unit ($) |
|
|
0.69 |
|
|
|
0.69 |
|
|
|
0.69 |
|
Daily production (boe) |
|
|
59,082 |
|
|
|
57,988 |
|
|
|
58,894 |
|
Total production (mboe) |
|
|
5,317 |
|
|
|
5,277 |
|
|
|
5,418 |
|
Average realized price per boe ($ per boe) |
|
|
44.97 |
|
|
|
47.79 |
|
|
|
56.07 |
|
Operating netback per boe ($ per boe) |
|
|
27.70 |
|
|
|
29.26 |
|
|
|
33.94 |
|
- 16 - PENGROWTH ENERGY TRUST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Oil and gas sales ($000s) |
|
|
168,771 |
|
|
|
197,284 |
|
|
|
226,514 |
|
|
|
223,183 |
|
Net income ($000s) |
|
|
38,652 |
|
|
|
32,684 |
|
|
|
51,271 |
|
|
|
31,138 |
|
Net income per unit ($) |
|
|
0.31 |
|
|
|
0.24 |
|
|
|
0.38 |
|
|
|
0.23 |
|
Net income per unit diluted ($) |
|
|
0.31 |
|
|
|
0.24 |
|
|
|
0.38 |
|
|
|
0.23 |
|
Distributable cash ($000s) |
|
|
92,895 |
|
|
|
99,021 |
|
|
|
104,304 |
|
|
|
104,598 |
|
Actual distributions paid or declared per unit ($) |
|
|
0.63 |
|
|
|
0.64 |
|
|
|
0.67 |
|
|
|
0.69 |
|
Daily production (boe) |
|
|
45,668 |
|
|
|
51,451 |
|
|
|
60,151 |
|
|
|
57,425 |
|
Total production (mboe) |
|
|
4,156 |
|
|
|
4,682 |
|
|
|
5,534 |
|
|
|
5,283 |
|
Average realized price per boe ($ per boe) |
|
|
40.37 |
|
|
|
41.83 |
|
|
|
40.90 |
|
|
|
42.08 |
|
Operating netback per boe ($ per boe) |
|
|
25.71 |
|
|
|
25.71 |
|
|
|
22.77 |
|
|
|
24.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Oil and gas sales ($000s) |
|
|
207,891 |
|
|
|
171,836 |
|
|
|
165,601 |
|
|
|
157,404 |
|
Net income ($000s) |
|
|
62,920 |
|
|
|
54,214 |
|
|
|
34,808 |
|
|
|
37,355 |
|
Net income per unit ($) |
|
|
0.57 |
|
|
|
0.49 |
|
|
|
0.29 |
|
|
|
0.31 |
|
Net income per unit diluted ($) |
|
|
0.57 |
|
|
|
0.48 |
|
|
|
0.29 |
|
|
|
0.30 |
|
Distributable cash ($000s) |
|
|
108,025 |
|
|
|
79,695 |
|
|
|
81,057 |
|
|
|
77,122 |
|
Actual distributions paid or declared per unit ($) |
|
|
0.75 |
|
|
|
0.67 |
|
|
|
0.63 |
|
|
|
0.63 |
|
Daily production (boe) |
|
|
50,827 |
|
|
|
48,839 |
|
|
|
48,850 |
|
|
|
47,653 |
|
Total production mboe |
|
|
4,574 |
|
|
|
4,444 |
|
|
|
4,494 |
|
|
|
4,384 |
|
Average realized price per boe ($ per boe) |
|
|
45.21 |
|
|
|
38.60 |
|
|
|
36.65 |
|
|
|
35.78 |
|
Operating netback per boe ($ per boe) |
|
|
26.50 |
|
|
|
21.11 |
|
|
|
20.54 |
|
|
|
20.43 |
|
Outlook
Based on third quarter 2005 production results, Pengrowth expects daily average production of
approximately 57,500 to 58,500 boe per day for the full year 2005. This estimate incorporates
production additions from the Swan Hills Unit No. 1 and Crispin acquisitions, Pengrowths 2005
development program and two condensate shipments from SOEP in the fourth quarter of 2005, offset by
normal production declines and non-core property divestitures.
Total operating costs for 2005 are expected to increase to approximately $210 to $220 million
including a full year of costs from the Murphy acquisition and those associated with the Swan Hills
Unit No. 1 and Crispin acquisitions. Assuming Pengrowths average production results for 2005 are
as forecast above, Pengrowth now estimates 2005 operating costs per boe of between $9.80 and $10.45
and combined G&A and management fees of approximately $2.05 to $2.15 per boe.
Pengrowth currently anticipates capital expenditures for maintenance and development of
approximately $185 million for 2005.
Pengrowth is pleased to announce an increase in monthly distributions during the fourth quarter to
$0.25 per trust unit beginning with the December 15, 2005 distribution which is expected to result
in a payout ratio of 73 to 76 percent for the full year 2005.
Pengrowth is continually evaluating its portfolio for optimization opportunities. In addition to
the property sales which closed in the third quarter of 2005, purchase and sale agreements have
been executed with several parties to acquire from Pengrowth non-core properties with associated
production of approximately 400 boe per day for gross proceeds of approximately $20 million, before
adjustments. These divestments were previously disclosed in the second quarter of 2005 and are now
expected to close in the fourth quarter.
In connection with statements made in the 2005 Federal Budget, the Department of Finance released a
consultation paper on September 8, 2005 titled Tax and Other Issues Related to Publicly Listed
Flow-Through Entities. The consultation process may result in changes to the regulatory or tax
environment for Pengrowth and its unitholders which could adversely impact Pengrowths trust unit
price and distribution.
Pengrowth has sought and achieved compliance with applicable legal and regulatory provisions. On
July 27, 2004, Pengrowth implemented a Class A and Class B trust unit structure to manage the level
of non-resident ownership of the Fund. Subsequent to
PENGROWTH ENERGY TRUST - 17 -
implementation of the structure, and prior to June 1, 2005, Pengrowth achieved foreign
ownership below a threshold of 49.75% in accordance with an advance tax ruling by Canada Revenue
Agency essentially confirming the status of Pengrowth Trust as a Mutual Fund Trust under the Income
Tax Act (Canada).
To the extent that Class A trust units in the future represent less than the ownership threshold of
49.75 percent, conversion of Class B trust units to Class A trust units is permissible under the
Trust Indenture. Pengrowth proposed a new form of reservation system that was approved in
principle by unitholders at the Annual & Special Unitholder Meeting on April 26, 2005 in order to
provide all unitholders with an equal and orderly opportunity to convert Class B trust units into
Class A trust units. Pengrowth is currently working with Computershare Trust Company of Canada to
design an appropriate system and proposes to make a press release in respect to the implementation
of the system during the fourth quarter.
James S. Kinnear
Chairman, President and Chief Executive Officer
November 3, 2005
- 18 - PENGROWTH ENERGY TRUST
Operations Review
REVIEW OF DEVELOPMENT ACTIVITIES (All volumes stated below are net to Pengrowth unless
otherwise stated)
NORTHEAST BRITISH COLUMBIA
|
|
|
Successfully drilled one oil well at Oak Baldonnel (100 percent working interest) and testing
is currently underway. |
|
|
|
|
Completed Reservoir Simulation on Oak Cecil C Pool. Identified an infill drilling opportunity
for the fourth quarter. |
|
|
|
|
Delineated Notikewin play over Bulrush area for first quarter 2006 activity. |
|
|
|
|
Sirius/Prespatou Gas Facility was brought online in July (90 percent working interest) with
4.0 mmcf per day gross throughput. |
|
|
|
|
Two non-operated recompletions (33.33 percent working interest) yielded 1.0 mmcf per day at
Bonanza and will be tied-in during the fourth quarter. |
|
|
|
|
Two parcels were purchased at Crown land sales for prospects to be drilled in 2006. |
SOUTHERN
|
|
|
A 100 percent working interest well in the West Pembina area came on production at 1.0 mmcf
per day. |
|
|
|
|
A non-operated gas well (20 percent working interest) was tested in the Notikewin formation
at 320 mcf per day. |
|
|
|
|
Pengrowth increased its undeveloped land position at West Pembina during the quarter. |
|
|
|
|
During the third quarter, 44 wells of a 52 well program for the Milk River and Medicine Hat
formations at Princess, Alberta were drilled, completed, fracture stimulated and tied-in
(mainly in the third quarter). These wells should come on production November 1, 2005. The
drilling of the remaining eight wells was deferred to 2006. |
|
|
|
Wells which came on during the third quarter include two Belly River (284 mcf and 250 mcf per
day), one Ellerslie (460 mcf per day) and one additional well was drilled and is awaiting
completion. |
|
|
|
|
Imperial Oil Resources served notice of their intent to commence the drilling of a gas well
at Quirk Creek. Pengrowth is participating in this well with a working interest of 68
percent. |
PENGROWTH ENERGY TRUST - 19 -
CENTRAL
Judy Creek
|
|
|
A new miscible pattern is beginning to see response with incremental oil production of 283
barrels of oil per day. |
|
|
|
|
One producer reactivation added 25 barrels of oil per day. |
|
|
|
|
Pengrowth acquired 4,000 acres at Crown land sales on parcels directly offsetting the Judy
Creek A & B pools. |
|
|
|
|
Two farm-in wells were drilled by industry partners. |
|
|
|
|
The Judy Creek Plant Acid Gas Injection project is underway with the testing of a prospective
injection well. The acid gas compressor is on order and Alberta Environment has granted an
extension to the current plant license to July, 2006 to allow time for the implementation of
this project. |
McLeod
|
|
|
One well drilled at a Gething location was dry and abandoned. |
Weyburn Unit
|
|
|
Fourteen oil wells were drilled in the third quarter. These were a combination of
horizontals and vertical re-entries for
horizontal production. Production response to the drilling and
CO2 injection programs has been
favourabel. |
Hanlan
|
|
|
At the Hanlan Unit and Hanlan Robb Gas Plant one gas well was drilled and expected onstream
in September, 2005. The initial in-line flow test (3.3 mmcf per day gross) is now being analyzed by
the operator and is slated to come onstream in February 2006. |
South Swan Hills Unit
|
|
|
Two wells were rig released from drilling in the third quarter. Plans are in place to test
these multi-legged horizontal oil wells in the east platform area. The operator has not yet
reported results. |
Swan Hills Unit No. 1
|
|
|
The final three oil producers in a seven well drilling program came onstream in the third
quarter. The last two of a four oil well reactivation program came onstream in July. |
- 20 - PENGROWTH ENERGY TRUST
HEAVY OIL
|
|
|
Three development wells were drilled in East Bodo, one of which is a horizontal well. These
wells were drilled to change the waterflood pattern from an inverted nine spot to a line
drive. Pengrowth expects initial primary production for up to a year before conversion to a
line drive. |
|
|
|
|
A non-operated development well was drilled and cased at South Bodo (35 percent working
interest). |
|
|
|
|
One development well in Cosine and one development well in Plover are expected to be
completed as gas wells with the potential for up to four development infill opportunities.
All are expected to be tied-in in the fourth quarter of 2005. |
|
|
|
|
The polymer skid for the East Bodo polymer pilot has been ordered. It is now under
construction with delivery, installation and polymer injection to start in 2006. |
|
|
|
|
A large 3-D seismic program in the East Bodo area has been initiated for development
potential and possible surveillance of the East Bodo waterflood and polymer pilot. |
SABLE OFFSHORE ENERGY PROJECT
Production
|
|
|
Third quarter gross raw gas production from the five SOEP fields, Thebaud, Venture, North
Triumph, Alma and South Venture averaged 432 mmcf per day gross ( 36.3 mmcf per day net). |
|
|
|
|
Monthly raw production for July, August, and September was 414 mmcf per day gross (36.3 mmcf
per day net), 446 mmcf per day gross (37.5 mmcf per day net) and 435 mmcf per day gross (36.5
mmcf per day net), respectively. |
|
|
|
|
Pengrowth also had a 65,000 bbl condensate sale in August. |
|
|
|
|
The Venture 7 (V7) development well was spudded on August 5, 2005. As of September 30, 2005
the V7 well was at a drilled depth of 5,666 meters with a projected total depth of 6,444
meters. The V7 well is expected to start production by year-end. |
Tier II Status
|
|
|
Fabrication of the compression topsides, jacket and piles is approximately 40 percent
complete. |
|
|
|
|
Cut-in work in preparation for the compressor installation is in progress at the Thebaud
facilities. |
|
|
|
|
In-service date for the compressor is scheduled for late 2006. |
PENGROWTH
ENERGY TRUST - 21 -
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
As at |
|
As at |
|
|
September 30 |
|
December 31 |
(Stated in thousands of dollars) |
|
2005 |
|
2004 |
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash |
|
$ |
997 |
|
|
$ |
|
|
Accounts receivable |
|
|
127,392 |
|
|
|
104,228 |
|
Inventory |
|
|
|
|
|
|
439 |
|
|
|
|
|
128,389 |
|
|
|
104,667 |
|
|
|
|
|
|
|
|
|
|
REMEDIATION TRUST FUND |
|
|
9,113 |
|
|
|
8,309 |
|
|
|
|
|
|
|
|
|
|
DEFERRED CHARGES (Note 6) |
|
|
5,679 |
|
|
|
3,651 |
|
|
|
|
|
|
|
|
|
|
GOODWILL (Note 3) |
|
|
183,385 |
|
|
|
170,619 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
AND OTHER ASSETS |
|
|
2,090,399 |
|
|
|
1,989,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,416,965 |
|
|
$ |
2,276,534 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND UNITHOLDERS EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Bank indebtedness |
|
$ |
|
|
|
$ |
4,214 |
|
Accounts payable and accrued liabilities |
|
|
107,089 |
|
|
|
80,423 |
|
Distributions payable to unitholders |
|
|
73,323 |
|
|
|
70,456 |
|
Due to Pengrowth Management Limited |
|
|
5,096 |
|
|
|
7,325 |
|
Note payable |
|
|
15,000 |
|
|
|
15,000 |
|
Current portion of contract liabilities |
|
|
5,409 |
|
|
|
5,795 |
|
|
|
|
|
205,917 |
|
|
|
183,213 |
|
|
|
|
|
|
|
|
|
|
NOTE PAYABLE |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
CONTRACT LIABILITIES |
|
|
14,256 |
|
|
|
18,216 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT (Note 2) |
|
|
422,220 |
|
|
|
345,400 |
|
|
|
|
|
|
|
|
|
|
ASSET RETIREMENT OBLIGATIONS (Note 5) |
|
|
183,452 |
|
|
|
171,866 |
|
|
|
|
|
|
|
|
|
|
FUTURE INCOME TAXES |
|
|
103,261 |
|
|
|
75,628 |
|
|
|
|
|
|
|
|
|
|
TRUST UNITHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Trust Unitholders capital (Note 4) |
|
|
2,504,125 |
|
|
|
2,383,284 |
|
Contributed surplus (Note 4) |
|
|
3,186 |
|
|
|
1,923 |
|
Accumulated earnings |
|
|
936,720 |
|
|
|
727,057 |
|
Accumulated distributions paid or declared |
|
|
(1,976,172 |
) |
|
|
(1,650,053 |
) |
|
|
|
|
1,467,859 |
|
|
|
1,462,211 |
|
|
|
|
|
|
|
|
|
|
|
SUBSEQUENT EVENT (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,416,965 |
|
|
$ |
2,276,534 |
|
|
See accompanying notes to the consolidated financial statements.
- 22 - PENGROWTH ENERGY TRUST
Consolidated Statements of Income and Accumulated Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
(Stated in thousands of dollars) |
|
September 30 |
|
September 30 |
(Unaudited) |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales |
|
$ |
304,484 |
|
|
$ |
226,514 |
|
|
$ |
797,587 |
|
|
$ |
592,569 |
|
Processing and other income |
|
|
2,039 |
|
|
|
2,871 |
|
|
|
11,771 |
|
|
|
8,495 |
|
Royalties, net of incentives |
|
|
(57,414 |
) |
|
|
(49,207 |
) |
|
|
(145,879 |
) |
|
|
(111,274 |
) |
|
|
|
|
249,109 |
|
|
|
180,178 |
|
|
|
663,479 |
|
|
|
489,790 |
|
Interest and other income |
|
|
74 |
|
|
|
78 |
|
|
|
1,916 |
|
|
|
1,204 |
|
|
NET REVENUE |
|
|
249,183 |
|
|
|
180,256 |
|
|
|
665,395 |
|
|
|
490,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
57,371 |
|
|
|
47,163 |
|
|
|
156,885 |
|
|
|
117,149 |
|
Transportation |
|
|
1,969 |
|
|
|
2,423 |
|
|
|
5,584 |
|
|
|
5,797 |
|
Amortization of injectants for miscible floods |
|
|
5,969 |
|
|
|
4,694 |
|
|
|
17,322 |
|
|
|
14,721 |
|
Interest |
|
|
5,644 |
|
|
|
8,650 |
|
|
|
16,786 |
|
|
|
20,582 |
|
General and administrative |
|
|
7,559 |
|
|
|
6,142 |
|
|
|
21,765 |
|
|
|
17,538 |
|
Management fee |
|
|
3,537 |
|
|
|
2,493 |
|
|
|
11,588 |
|
|
|
10,317 |
|
Foreign exchange gain (Note 7) |
|
|
(12,255 |
) |
|
|
(13,688 |
) |
|
|
(8,470 |
) |
|
|
(6,651 |
) |
Depletion and depreciation |
|
|
73,541 |
|
|
|
69,323 |
|
|
|
213,594 |
|
|
|
177,923 |
|
Accretion (Note 5) |
|
|
3,578 |
|
|
|
3,093 |
|
|
|
10,531 |
|
|
|
7,465 |
|
|
|
|
|
146,913 |
|
|
|
130,293 |
|
|
|
445,585 |
|
|
|
364,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE TAXES |
|
|
102,270 |
|
|
|
49,963 |
|
|
|
219,810 |
|
|
|
126,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (RECOVERY) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
2,116 |
|
|
|
1,474 |
|
|
|
4,722 |
|
|
|
2,849 |
|
Future |
|
|
(89 |
) |
|
|
(2,782 |
) |
|
|
5,425 |
|
|
|
697 |
|
|
|
|
|
2,027 |
|
|
|
(1,308 |
) |
|
|
10,147 |
|
|
|
3,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
100,243 |
|
|
$ |
51,271 |
|
|
$ |
209,663 |
|
|
$ |
122,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated earnings, beginning of period |
|
|
836,477 |
|
|
|
644,648 |
|
|
|
727,057 |
|
|
|
573,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED EARNINGS, END OF PERIOD |
|
$ |
936,720 |
|
|
$ |
695,919 |
|
|
$ |
936,720 |
|
|
$ |
695,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER UNIT (Note 4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.631 |
|
|
$ |
0.377 |
|
|
$ |
1.341 |
|
|
$ |
0.927 |
|
Diluted |
|
$ |
0.629 |
|
|
$ |
0.376 |
|
|
$ |
1.337 |
|
|
$ |
0.923 |
|
|
See accompanying notes to the consolidated financial statements.
PENGROWTH
ENERGY TRUST - 23 -
Consolidated Statements of Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
(Stated in thousands of dollars) |
|
September 30 |
|
September 30 |
(Unaudited) |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
CASH PROVIDED BY (USED FOR): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
100,243 |
|
|
$ |
51,271 |
|
|
$ |
209,663 |
|
|
$ |
122,607 |
|
Depletion, depreciation and accretion |
|
|
77,119 |
|
|
|
72,416 |
|
|
|
224,125 |
|
|
|
185,388 |
|
Future income taxes |
|
|
(89 |
) |
|
|
(2,782 |
) |
|
|
5,425 |
|
|
|
697 |
|
Contract liability amortization |
|
|
(1,448 |
) |
|
|
(1,555 |
) |
|
|
(4,346 |
) |
|
|
(2,379 |
) |
Amortization of injectants |
|
|
5,969 |
|
|
|
4,694 |
|
|
|
17,322 |
|
|
|
14,721 |
|
Purchase of injectants |
|
|
(6,861 |
) |
|
|
(3,031 |
) |
|
|
(20,176 |
) |
|
|
(12,239 |
) |
Expenditures on remediation |
|
|
(1,676 |
) |
|
|
(1,199 |
) |
|
|
(4,300 |
) |
|
|
(4,029 |
) |
Unrealized foreign exchange gain (Note 7) |
|
|
(12,860 |
) |
|
|
(14,440 |
) |
|
|
(8,180 |
) |
|
|
(6,980 |
) |
Trust unit based compensation |
|
|
608 |
|
|
|
554 |
|
|
|
2,137 |
|
|
|
1,925 |
|
Deferred charges |
|
|
(4,283 |
) |
|
|
|
|
|
|
(4,283 |
) |
|
|
|
|
Amortization of deferred charges |
|
|
1,465 |
|
|
|
473 |
|
|
|
2,255 |
|
|
|
1,420 |
|
Changes in non-cash operating working capital (Note 8) |
|
|
789 |
|
|
|
9,857 |
|
|
|
1,840 |
|
|
|
9,749 |
|
|
|
|
|
158,976 |
|
|
|
116,258 |
|
|
|
421,482 |
|
|
|
310,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
(109,455 |
) |
|
|
(88,293 |
) |
|
|
(323,252 |
) |
|
|
(251,822 |
) |
Change in long-term debt, net |
|
|
(26,428 |
) |
|
|
14,680 |
|
|
|
64,541 |
|
|
|
339,680 |
|
Proceeds from issue of trust units |
|
|
15,477 |
|
|
|
13,036 |
|
|
|
32,007 |
|
|
|
218,205 |
|
|
|
|
|
(120,406 |
) |
|
|
(60,577 |
) |
|
|
(226,704 |
) |
|
|
306,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures on property acquisitions |
|
|
(2,861 |
) |
|
|
(20,852 |
) |
|
|
(94,427 |
) |
|
|
(574,045 |
) |
Expenditures on property, plant and equipment |
|
|
(40,050 |
) |
|
|
(43,455 |
) |
|
|
(114,486 |
) |
|
|
(107,020 |
) |
Proceeds on property dispositions |
|
|
18,623 |
|
|
|
|
|
|
|
18,623 |
|
|
|
|
|
Change in remediation trust fund |
|
|
(272 |
) |
|
|
(276 |
) |
|
|
(804 |
) |
|
|
(949 |
) |
Purchase of marketable securities |
|
|
|
|
|
|
(2,680 |
) |
|
|
|
|
|
|
(2,680 |
) |
Change in non-cash investing working capital (Note 8) |
|
|
1,527 |
|
|
|
1,385 |
|
|
|
1,527 |
|
|
|
(959 |
) |
|
|
|
|
(23,033 |
) |
|
|
(65,878 |
) |
|
|
(189,567 |
) |
|
|
(685,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH AND TERM DEPOSITS |
|
|
15,537 |
|
|
|
(10,197 |
) |
|
|
5,211 |
|
|
|
(68,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND TERM DEPOSITS
(BANK INDEBTEDNESS) AT BEGINNING OF PERIOD |
|
|
(14,540 |
) |
|
|
5,641 |
|
|
|
(4,214 |
) |
|
|
64,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND TERM DEPOSITS
(BANK INDEBTEDNESS) AT END OF PERIOD |
|
$ |
997 |
|
|
$ |
(4,556 |
) |
|
$ |
997 |
|
|
$ |
(4,556 |
) |
|
See accompanying notes to the consolidated financial statements.
- 24 - PENGROWTH ENERGY TRUST
Notes To Consolidated Financial Statements
(Unaudited)
September 30, 2005
(Tabular dollar amounts are stated in thousands of dollars except per trust unit amounts)
1. |
|
SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
The interim consolidated financial statements of Pengrowth Energy Trust include the
accounts of Pengrowth Energy Trust, Pengrowth Corporation and its subsidiaries (collectively
referred to as Pengrowth). The financial statements do not contain the accounts of Pengrowth
Management Limited (the Manager). The financial statements have been prepared by management
in accordance with accounting principles generally accepted in Canada. The 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, 2004. The disclosures provided below are incremental to those included with the
annual consolidated financial statements. The interim consolidated financial statements should
be read in conjunction with the consolidated financial statements and the notes thereto in
Pengrowths annual report for the year ended December 31, 2004. |
|
|
|
TRUST UNIT AWARD PLAN |
|
|
|
Effective July 13, 2005, Pengrowth established a new incentive plan to reward and retain
employees whereby Class B trust units and cash to offset the estimated taxable benefit will be
awarded to eligible employees. Employees will receive one half of the trust units and cash on
January 1, 2006 and one half of the trust units and cash on July 1, 2006. Any appreciation or
depreciation in the Class B trust units over the vesting period accrues to the eligible
employees. |
|
|
|
Pengrowth acquired the Class B trust units to be awarded under the plan on the open market for
$4.3 million and placed them in a trust account established for the benefit of the eligible
employees. The cost to acquire the trust units has been recorded as deferred compensation
expense and is being charged to net income on a straight line basis over one year. In
addition, the cash portion of the incentive plan of approximately $1.5 million is being accrued
on a straight line basis over one year. Any unvested trust units will be sold on the open
market. During the three months ended September 30, 2005 $1.4 million has been charged to net
income. |
|
|
|
TRUST UNIT BASED COMPENSATION PLANS |
|
|
|
Pengrowth has trust unit based compensation plans under which directors, officers,
employees and special consultants of Pengrowth and the Manager are eligible to receive trust
unit options and rights. Pengrowth records compensation expense and a corresponding decrease
to contributed surplus in respect of rights incentive options granted on or after January 1,
2003. The amount of compensation expense is reduced and a corresponding increase to
contributed surplus recorded for rights incentive options which are subsequently cancelled
prior to vesting. |
|
|
|
Compensation expense is based on a fair value method. The fair value of rights incentive
options granted during the nine months ended September 30, 2005 was estimated at 15 percent of the
exercise price at the date of grant using a modified Black-Scholes option pricing model with the
following assumptions: risk-free rate of 3.9 percent, volatility of 22 percent, expected life of
five years and adjustments for the estimated distributions and reductions in the exercise price
over the life of the right incentive option. For the three months ended September 30, 2005,
compensation expense of $250,000 (September 30, 2004 $312,000) and for the nine months ended
September 30, 2005 compensation expense of $1,308,000 (September 30, 2004 $938,000) related to
the rights incentive options was recorded. |
|
|
|
LONG TERM INCENTIVE PLAN |
|
|
|
Effective January 1, 2005, the Board of Directors approved a Long Term Incentive Plan.
Under the Long Term Incentive Plan for permanent employees of Pengrowth and other designated
participants, deferred entitlement trust units are granted based on a grant value as a
percentage of an individuals base salary and an established weighting of deferred entitlement
trust units and/or rights incentive options that is dependent on an individuals position
within the organization. The deferred entitlement trust units fully vest and are converted to
Pengrowth Energy Trust Class B trust units (Class B trust units) on the third anniversary year
from |
PENGROWTH ENERGY TRUST - 25 -
|
|
the date of grant and will receive distributions prior to the vesting date in the form of
additional deferred entitlement trust units. However, the number of deferred entitlement trust
units actually issued to each participant at the end of the three year vesting period will be
subject to a relative performance test which compares Pengrowths three year average total
return to the three year average total return of a peer group of other energy trusts such that
upon vesting, the number of Class B trust units issued from treasury may range from zero to one
and one-half times the number of deferred entitlement trust units granted plus accrued deferred
entitlement trust units through the deemed re-investment of distributions. |
|
|
|
Compensation expense related to deferred entitlement trust units is based on the fair value of
the deferred entitlement trust units at the date of grant. The number of Class B trust units
awarded at the end of the vesting period is subject to certain performance conditions.
Compensation expense incorporates the estimated fair value of the deferred entitlement trust
units at the date of grant and an estimate of the relative performance multiplier.
Fluctuations in compensation expense may occur due to changes in estimating the outcome of the
performance conditions. An estimate of forfeiture has not been made; rather compensation
expense is reduced for actual forfeitures as they occur. Compensation expense is recognized in
income over the vesting period with a corresponding increase or decrease to Contributed
Surplus. Upon issuance of the Class B trust units at the end of the vesting period, trust unit
holders capital is increased and contributed surplus is reduced. For the three months ended
and nine months ended September 30, 2005, Pengrowth recorded compensation expense of $358,000
and $795,000, respectively associated with the deferred entitlement trust units. Compensation
expense associated with the deferred entitlement trust units was based on the weighted average
estimated fair value of $18.69 per deferred entitlement trust unit. |
|
2. |
|
LONG TERM DEBT |
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As at |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
U.S. dollar denominated debt: |
|
|
|
|
|
|
|
|
U.S. $150 million senior unsecured notes at 4.93% due April 2010 |
|
$ |
174,165 |
|
|
$ |
180,300 |
|
U.S. $50 million senior unsecured notes at 5.47% due April 2013 |
|
|
58,055 |
|
|
|
60,100 |
|
|
|
|
|
232,220 |
|
|
|
240,400 |
|
Canadian dollar revolving credit borrowings |
|
|
190,000 |
|
|
|
105,000 |
|
|
|
|
$ |
422,220 |
|
|
$ |
345,400 |
|
|
|
|
On September 30, 2005 Pengrowth had a $470 million revolving unsecured credit facility
syndicated among eight financial institutions of which approximately $295 million remained
unutilized. The facilities are currently reduced by outstanding letters of credit in the
amount of approximately $21 million. The credit facility is an extendible 364 day revolving
facility with a three year amortization period. The credit facility will revolve until June
16, 2006 and is extendible at that time at the lenders option. In the event the facility is
not renewed, any amount outstanding would be repaid in equal quarterly instalments over
the three year period. Pengrowth can post, at its option, security suitable to the banks in
lieu of the first years payments. In such an instance, no principal payment would be made to
the banks for the one year following the date of non-renewal. Pengrowth also has a $35 million
demand operating line of credit. Interest payable on amounts drawn is at the prevailing
bankers acceptance rates plus stamping fees, lenders prime lending rates, or U.S. LIBOR rates
plus applicable margins, depending on the form of borrowing by Pengrowth. The margin and
stamping fees vary from 0.25 percent to 1.40 percent on the new revolving credit facility
depending on financial statement ratios and the form of borrowing. |
|
3. |
|
CORPORATE ACQUISITION |
|
|
|
On April 29, 2005, Pengrowth acquired all of the issued and outstanding shares of Crispin
Energy Inc. (Crispin) which held interests in oil and natural gas assets mainly in Alberta.
The shares were acquired on the basis of exchanging 0.0725 Class B trust units of Pengrowth
Energy Trust for each share held by Canadian resident shareholders of Crispin and 0.0512 Class
A trust units of Pengrowth Energy Trust for each share held by non-Canadian resident
shareholders of Crispin. The average value assigned to each trust unit issued was $20.80 based
on the weighted average trading price of the Class A and Class B trust units for a period
before and after the acquisition was announced. Pengrowth Energy Trust issued 3,538,581 Class
B trust units and 686,732 Class A trust units valued at $88 million. The transaction was
accounted for using the purchase method of accounting with the allocation of the purchase price
and consideration as follows: |
- 26 - PENGROWTH ENERGY TRUST
|
|
|
|
|
Allocation of purchase price: |
|
|
|
|
|
Working capital |
|
$ |
1,655 |
|
Property, plant, and equipment |
|
|
121,729 |
|
Goodwill |
|
|
12,766 |
|
Long-term debt |
|
|
(20,459 |
) |
Asset retirement obligations |
|
|
(4,038 |
) |
Future income taxes |
|
|
(22,208 |
) |
|
|
|
$ |
89,445 |
|
|
Cost of acquisition: |
|
|
|
|
Trust units issued |
|
$ |
87,960 |
|
Acquisition costs |
|
|
1,485 |
|
|
|
|
$ |
89,445 |
|
|
|
|
Property, plant and equipment of $122 million represents the estimated fair value of the assets
acquired determined in part by an independent reserve evaluation. Goodwill of $13 million,
which is not deductible for tax purposes, was determined based on the excess of the total cost
of the acquisition less the value assigned to the identifiable assets and liabilities including
the future income tax liability. |
|
|
|
The future income tax liability was determined based on an enacted income tax rate of
approximately 34 percent as at April 29, 2005. Results from operations of the acquired assets
of Crispin subsequent to April 29, 2005 are included in the consolidated financial statements.
Final determination of the cost of the acquisition and the allocation thereof to the fair
values of Crispins net assets is still pending. |
|
4. |
|
TRUST UNITS |
|
|
|
The total authorized capital of Pengrowth is 500,000,000 trust units. |
|
|
|
Undeclared Trust Units: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 Months Ended |
|
12 Months Ended |
|
|
September 30, 2005 |
|
December 31, 2004 |
|
|
Number |
|
|
|
|
|
Number |
|
|
Trust units issued |
|
of units |
|
Amount |
|
of units |
|
Amount |
|
Balance, beginning of period |
|
|
73,325 |
|
|
$ |
1,123 |
|
|
|
123,873,651 |
|
|
$ |
1,872,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued for cash |
|
|
|
|
|
|
|
|
|
|
10,900,000 |
|
|
|
200,560 |
|
Less: issue expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,710 |
) |
Issued for cash on exercise of trust units
options and rights |
|
|
|
|
|
|
|
|
|
|
547,974 |
|
|
|
8,735 |
|
Issued for cash under Distribution
Reinvestment Plan (DRIP) |
|
|
|
|
|
|
|
|
|
|
543,888 |
|
|
|
9,636 |
|
Trust unit rights incentive plan (non-cash
exercised) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259 |
|
Royalty units exchanged for trust units |
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
Balance, prior to conversion |
|
|
|
|
|
|
|
|
|
|
135,866,213 |
|
|
$ |
2,081,404 |
|
Converted to Class A or Class B trust units |
|
|
(25,556 |
) |
|
|
(392 |
) |
|
|
(135,792,888 |
) |
|
|
(2,080,281 |
) |
|
Balance, end of period |
|
|
47,769 |
|
|
$ |
731 |
|
|
|
73,325 |
|
|
$ |
1,123 |
|
|
PENGROWTH ENERGY TRUST - 27 -
Class A Trust Units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 Months Ended |
|
For the period from |
|
|
September 30, 2005 |
|
July 27, 2004 to Dec 31, 2004 |
|
|
Number |
|
|
|
|
|
Number |
|
|
Trust units issued |
|
Of units |
|
Amount |
|
of units |
|
Amount |
|
Balance, beginning of period |
|
|
76,792,759 |
|
|
$ |
1,176,427 |
|
|
|
|
|
|
$ |
|
|
Issued for the Crispin acquisition (non-cash)
(Note 3) |
|
|
686,732 |
|
|
|
19,002 |
|
|
|
|
|
|
|
|
|
Trust units converted |
|
|
45,082 |
|
|
|
691 |
|
|
|
76,792,759 |
|
|
|
1,176,427 |
|
|
Balance, end of period |
|
|
77,524,573 |
|
|
$ |
1,196,120 |
|
|
|
76,792,759 |
|
|
$ |
1,176,427 |
|
|
Class B Trust Units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 Months Ended |
|
For the period from |
|
|
September 30, 2005 |
|
July 27, 2004 to Dec 31, 2004 |
|
|
Number |
|
|
|
|
|
Number |
|
|
Trust units issued |
|
Of units |
|
Amount |
|
of units |
|
Amount |
|
Balance, beginning of period |
|
|
76,106,471 |
|
|
$ |
1,205,734 |
|
|
|
|
|
|
$ |
|
|
Trust units converted |
|
|
(19,526 |
) |
|
|
(299 |
) |
|
|
59,000,129 |
|
|
|
903,854 |
|
Issued for cash |
|
|
|
|
|
|
|
|
|
|
15,985,000 |
|
|
|
298,920 |
|
Less: issue expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,577 |
) |
Issued for the Crispin acquisition (non-cash)
(Note 3) |
|
|
3,538,581 |
|
|
|
68,958 |
|
|
|
|
|
|
|
|
|
Issued for cash on exercise of trust units
options and rights |
|
|
1,235,557 |
|
|
|
17,449 |
|
|
|
746,864 |
|
|
|
11,516 |
|
Issued for cash under Distribution
Reinvestment Plan (DRIP) |
|
|
829,918 |
|
|
|
14,558 |
|
|
|
374,478 |
|
|
|
6,750 |
|
Trust unit rights incentive plan (non-cash
exercised) |
|
|
|
|
|
|
874 |
|
|
|
|
|
|
|
271 |
|
|
Balance, end of period |
|
|
81,691,001 |
|
|
$ |
1,307,274 |
|
|
|
76,106,471 |
|
|
$ |
1,205,734 |
|
|
|
|
As at September 30, 2005 Pengrowth had 159,263,343 trust units (December 31, 2004 152,972,555
trust units) outstanding. |
|
|
|
Per Trust Unit Amounts |
|
|
|
The per trust unit amounts of net income are based on the following weighted average trust units
outstanding for the period. The weighted average trust units outstanding for the three months
ended September 30, 2005 were 158,789,481 trust units (September 30, 2004 135,906,487 trust
units) and for the nine months ended September 30, 2005 were 156,318,245 trust units (September 30,
2004 132,213,280 trust units). In computing diluted net income per trust unit, 507,494 trust
units were added to the weighted average number of trust units outstanding during the three months
ended September 30, 2005 (September 30, 2004 633,751 trust units) and 502,233 trust units were
added for the nine months ended September 30, 2005 (September 30, 2004 623,464 trust units) for
the dilutive effect of trust unit options, rights and deferred entitlement trust units. For the
three months ended September 30, 2005, 10,140 options and rights (September 30, 2004 958,292
options and rights) and for the nine months ended September 30, 2005, 549,284 options and rights
(September 30, 2004 781,161 options and rights) were excluded from the diluted net income per
trust unit calculation as their effect is anti-dilutive. |
|
|
|
Contributed Surplus |
|
|
|
|
|
|
|
|
|
|
|
9 Months Ended |
|
12 Months Ended |
|
|
September 30, 2005 |
|
December 31, 2004 |
|
Balance, beginning of period |
|
$ |
1,923 |
|
|
$ |
189 |
|
Trust unit rights incentive plan (non-cash expensed) |
|
|
1,308 |
|
|
|
2,264 |
|
Deferred entitlement trust units (non-cash expensed) |
|
|
829 |
|
|
|
|
|
Trust unit rights incentive plan (non-cash exercised) |
|
|
(874 |
) |
|
|
(530 |
) |
|
Balance, end of period |
|
$ |
3,186 |
|
|
$ |
1,923 |
|
|
- 28 - PENGROWTH ENERGY TRUST
|
|
Trust Unit Option Plan |
|
|
|
As at September 30, 2005, options to purchase 365,200 Class B trust units were outstanding
(December 31, 2004 options to purchase 845,374 Class B trust units) that expire at various
dates to June 28, 2009. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 Months Ended |
|
12 Months Ended |
|
|
September 30, 2005 |
|
December 31, 2004 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Number |
|
Average |
|
Number |
|
Average |
Trust unit options |
|
Of options |
|
Exercise price |
|
of options |
|
Exercise price |
|
Outstanding at beginning of period |
|
|
845,374 |
|
|
$ |
16.97 |
|
|
|
2,014,903 |
|
|
$ |
17.47 |
|
Exercised |
|
|
(452,424 |
) |
|
$ |
16.37 |
|
|
|
(838,789 |
) |
|
$ |
16.82 |
|
Expired |
|
|
(2,400 |
) |
|
$ |
15.25 |
|
|
|
(325,200 |
) |
|
$ |
20.44 |
|
Cancelled |
|
|
(25,350 |
) |
|
$ |
18.98 |
|
|
|
(5,540 |
) |
|
$ |
16.53 |
|
|
Outstanding and exercisable at period-end |
|
|
365,200 |
|
|
$ |
17.57 |
|
|
|
845,374 |
|
|
$ |
16.97 |
|
|
|
|
Rights Incentive Plan |
|
|
|
As at September 30, 2005, rights to purchase 1,553,576 Class B trust units were outstanding
(December 31, 2004 rights to purchase 2,011,451 Class B trust units) that expire at various dates
to July 7, 2010. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 Months Ended |
|
12 Months Ended |
|
|
September 30, 2005 |
|
December 31, 2004 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Number |
|
Average |
|
Number |
|
Average |
Rights incentive options |
|
of rights |
|
Exercise price |
|
of rights |
|
Exercise price |
|
Outstanding at beginning of period |
|
|
2,011,451 |
|
|
$ |
14.23 |
|
|
|
1,112,140 |
|
|
$ |
12.20 |
|
Granted (1) |
|
|
521,312 |
|
|
$ |
18.18 |
|
|
|
1,409,856 |
|
|
$ |
17.35 |
|
Exercised |
|
|
(783,133 |
) |
|
$ |
12.82 |
|
|
|
(456,049 |
) |
|
$ |
13.47 |
|
Cancelled |
|
|
(196,054 |
) |
|
$ |
17.12 |
|
|
|
(54,496 |
) |
|
$ |
14.19 |
|
|
Outstanding at period-end |
|
|
1,553,576 |
|
|
$ |
14.88 |
|
|
|
2,011,451 |
|
|
$ |
14.23 |
|
|
Exercisable at period-end |
|
|
720,191 |
|
|
$ |
13.13 |
|
|
|
1,037,078 |
|
|
$ |
12.48 |
|
|
|
|
|
(1) |
|
Weighted average exercise price of rights granted are based on the exercise
price at the date of grant |
|
|
Long Term Incentive Program |
|
|
|
As at September 30, 2005, 150,529 deferred entitlement trust units were outstanding, including
accrued distributions re-invested to September 15, 2005. The deferred entitlement trust units vest
on various dates to July, 2008. |
|
|
|
|
|
|
|
Number of deferred |
|
|
|
entitlement trust |
|
|
|
units |
|
|
Outstanding, beginning of period |
|
|
|
|
Granted |
|
|
170,983 |
|
Cancelled |
|
|
(20,454 |
) |
|
Outstanding, end of period |
|
|
150,529 |
|
|
|
|
Compensation expense associated with the deferred entitlement trust units was based on the weighted
average estimated fair value of $18.69 per deferred entitlement trust unit. |
PENGROWTH
ENERGY TRUST - 29 -
5. |
|
ASSET RETIREMENT OBLIGATIONS |
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
For the year ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
Asset retirement obligations, beginning of period |
|
$ |
171,866 |
|
|
$ |
102,528 |
|
Increase (decrease) in liabilities related to: |
|
|
|
|
|
|
|
|
Acquisitions |
|
|
6,347 |
|
|
|
44,368 |
|
Additions |
|
|
1,302 |
|
|
|
2,681 |
|
Disposals |
|
|
(2,294 |
) |
|
|
|
|
Revisions |
|
|
|
|
|
|
16,087 |
|
Accretion expense |
|
|
10,531 |
|
|
|
10,642 |
|
Liabilities settled during the period |
|
|
(4,300 |
) |
|
|
(4,440 |
) |
|
Asset retirement obligations, end of period |
|
$ |
183,452 |
|
|
$ |
171,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As at |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
Imputed interest on note payable (net of
accumulated amortization of $2,543) |
|
$ |
1,065 |
|
|
$ |
2,020 |
|
U.S. debt issue costs (net of accumulated
amortization of $739) |
|
|
1,402 |
|
|
|
1,631 |
|
Deferred compensation expense (net of accumulated
amortization of $1,071) |
|
|
3,212 |
|
|
|
|
|
|
|
|
$ |
5,679 |
|
|
$ |
3,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Unrealized foreign exchange gain on
translation of U.S. dollar denominated debt |
|
$ |
12,860 |
|
|
$ |
14,440 |
|
|
$ |
8,180 |
|
|
$ |
6,980 |
|
Realized foreign exchange gain (loss) |
|
|
(605 |
) |
|
|
(752 |
) |
|
|
290 |
|
|
|
(329 |
) |
|
|
|
$ |
12,255 |
|
|
$ |
13,688 |
|
|
$ |
8,470 |
|
|
$ |
6,651 |
|
|
|
|
The U.S. dollar denominated debt is translated into Canadian dollars at the exchange rate in effect
at the balance sheet date. Foreign exchange gains and losses are included in income. |
- 30 - PENGROWTH ENERGY TRUST
8. |
|
OTHER CASH FLOW DISCLOSURES |
|
|
|
Change in Non-Cash Operating Working Capital |
|
|
|
Cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Accounts receivable |
|
$ |
(24,052 |
) |
|
$ |
(11,157 |
) |
|
$ |
(21,508 |
) |
|
$ |
(34,713 |
) |
Inventory |
|
|
|
|
|
|
(113 |
) |
|
|
439 |
|
|
|
170 |
|
Accounts payable and accrued liabilities |
|
|
23,884 |
|
|
|
19,701 |
|
|
|
25,138 |
|
|
|
39,128 |
|
Due to Pengrowth Management Limited |
|
|
957 |
|
|
|
1,426 |
|
|
|
(2,229 |
) |
|
|
5,164 |
|
|
|
|
$ |
789 |
|
|
$ |
9,857 |
|
|
$ |
1,840 |
|
|
$ |
9,749 |
|
|
|
|
Change in Non-Cash Investing Working Capital
Cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Accounts payable for capital accruals |
|
$ |
1,527 |
|
|
$ |
1,385 |
|
|
$ |
1,527 |
|
|
$ |
(959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Cash payments made for taxes |
|
$ |
1,787 |
|
|
$ |
1,730 |
|
|
$ |
4,363 |
|
|
$ |
2,885 |
|
Cash payments made for interest |
|
$ |
2,763 |
|
|
$ |
5,145 |
|
|
$ |
12,952 |
|
|
$ |
15,733 |
|
|
9. |
|
FINANCIAL INSTRUMENTS |
|
|
|
Pengrowth has a price risk management program whereby the commodity price associated with a
portion of its future production is fixed. Pengrowth sells forward a portion of its future
production through a combination of fixed price sales contracts with customers and commodity
swap agreements with financial counterparties. The forward and futures contracts are subject
to market risk from fluctuating commodity prices and exchange rates. |
|
|
|
As at September 30, 2005, Pengrowth had fixed the price applicable to future production as
follows: |
|
|
|
Crude Oil: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
Reference |
|
Price |
Remaining Term |
|
(bbl/day) |
|
Point |
|
per bbl |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial: |
|
|
|
|
|
|
|
|
|
|
|
|
Oct 1, 2005 Dec 31, 2005 |
|
|
10,000 |
|
|
WTI (1) |
|
$54.39 Cdn |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial: |
|
|
|
|
|
|
|
|
|
|
|
|
Jan 1, 2006 Dec 31, 2006 |
|
|
4,000 |
|
|
WTI (1) |
|
$64.08 Cdn |
|
PENGROWTH
ENERGY TRUST - 31 -
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
Reference |
|
Price |
Remaining Term |
|
(mmbtu/day) |
|
Point |
|
per mmbtu |
|
2005 |
|
|
|
|
|
|
|
|
|
|
Financial: |
|
|
|
|
|
|
|
|
|
|
Oct 1, 2005 Dec 31, 2005 |
|
|
11,000 |
|
|
Tetco M3 (1) |
|
$ 9.27 Cdn |
Oct 1, 2005 Dec 31, 2005 |
|
|
5,000 |
|
|
Transco Z6 (1) |
|
$10.11 Cdn |
Oct 1, 2005 Dec 31, 2005 |
|
|
2,500 |
|
|
NGI Chicago (1) |
|
$ 9.41 Cdn |
Oct 1, 2005 Dec 31, 2005 |
|
|
2,500 |
|
|
NYMEX (1) |
|
$14.07 Cdn |
Oct 1, 2005 Dec 31, 2005 |
|
|
2,370 |
|
|
AECO |
|
$ 8.35 Cdn |
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Financial: |
|
|
|
|
|
|
|
|
|
|
Jan 1, 2006 Dec 31, 2006 |
|
|
2,500 |
|
|
Transco Z6 (1) |
|
$10.63 Cdn |
Jan 1, 2006 Dec 31, 2006 |
|
|
2,370 |
|
|
AECO |
|
$ 8.03 Cdn |
Jan 1, 2006 Mar 31, 2006 |
|
|
2,500 |
|
|
NYMEX (1) |
|
$14.56 Cdn |
|
|
|
(1) |
|
Associated Cdn$ / U.S. $ foreign exchange rate has been fixed. |
|
|
The estimated fair value of the financial crude oil and natural gas contracts has been
determined based on the amounts Pengrowth would receive or pay to terminate the contracts at
period-end. At September 30, 2005, the amount Pengrowth would pay to terminate the financial crude
oil and natural gas contracts would be $39,198,000 and $25,036,000, respectively. |
|
|
|
Natural Gas Fixed Price Sales Contract: |
|
|
|
Pengrowth also has a natural gas fixed price physical sales contract outstanding, the details of
which are provided below: |
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
Price |
Remaining Term |
|
(mmbtu/day) |
|
per mmbtu (2) |
|
2005 to 2009 |
|
|
|
|
|
|
|
|
July 1, 2005 Oct 31, 2005 |
|
|
3,886 |
|
|
$2.18 Cdn |
Nov 1, 2005 Oct 31, 2006 |
|
|
3,886 |
|
|
$2.23 Cdn |
Nov 1, 2006 Oct 31, 2007 |
|
|
3,886 |
|
|
$2.29 Cdn |
Nov 1, 2007 Oct 31, 2008 |
|
|
3,886 |
|
|
$2.34 Cdn |
Nov 1, 2008 Apr 30, 2009 |
|
|
3,886 |
|
|
$2.40 Cdn |
|
|
|
|
(2) |
|
Reference price based on AECO |
|
|
As at September 30, 2005, the fair value amount Pengrowth would pay to terminate the
natural gas fixed price sales contract would be $37,822,000 (December 31, 2004 -
$22,282,000). |
|
|
|
Fair Value of Financial Instruments |
|
|
|
The carrying value of financial instruments included in the balance sheet, other than long term
debt, the note payable and remediation trust funds approximate their fair value due to their
short maturity. The fair value of the remediation trust funds at September 30, 2005 was
approximately $9,207,000 (December 31, 2004 $8,366,000). The fair value of the U.S. dollar
denominated debt at September 30, 2005 was approximately $225,850,000 (December 31, 2004 -
$238,726,000) based on the changes in the fair value of the underlying seven and ten year U.S.
Treasury Bill that was originally used as the basis for determining the coupon rate for each of
Pengrowth Corporations notes. The fair value of the note payable at September 30, 2005,
approximates its carrying value net of the imputed interest included in deferred charges. |
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SUBSEQUENT EVENT |
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Purchase and sale agreements have been executed with several parties to acquire from
Pengrowth non-core properties with associated production of approximately 400 boe per day for
gross proceeds of approximately $20 million. These divestments were previously disclosed in the
second quarter of 2005 and are now expected to close in the fourth quarter. |
32 PENGROWTH ENERGY TRUST
Corporate Information
DIRECTORS OF PENGROWTH CORPORATION
Thomas A. Cumming
Business Consultant
Kirby L. Hedrick
Business Consultant
James S. Kinnear; Chairman
President, Pengrowth Management Limited
Michael S. Parrett
Business Consultant
A. Terence Poole
Executive Vice-President, Corporate
Strategy and Development, Nova
Chemicals Corporation
William R. Stedman (Resigned effective October 28, 2005)
Chairman and Chief Executive Officer, ENTx Capital Corporation
Stanley H. Wong
President, Carbine Resources Ltd.
John B. Zaozirny; Lead Director
Counsel, McCarthy Tetrault
Director Emeritus
Thomas S. Dobson
President, T.S. Dobson Consultant Ltd.
Francis G. Vetsch
President, Vetsch Resource Management Ltd.
OFFICERS OF PENGROWTH CORPORATION
James S. Kinnear
Chairman, President and Chief Executive Officer
Christopher Webster
Chief Financial Officer
Gordon M. Anderson
Vice President, Finance
James Causgrove
Vice President, Production and Operations
William Christensen
Vice President, Strategic Planning and Reservoir Exploitation
Charles V. Selby
Vice President and Corporate Secretary
Larry B. Strong
Vice President, Geosciences
TRUSTEE
Computershare Trust Company of Canada
BANKERS
Bank Syndicate Agent: Royal Bank of Canada
AUDITORS
KPMG LLP
ENGINEERING CONSULTANTS
GLJ Petroleum Consultants Ltd.
ABBREVIATIONS
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bbl
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barrel |
bcf
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billion cubic feet |
boe*
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barrels of oil |
equivalent |
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boe per day*
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barrels of oil equivalent per day |
lt
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long.tonnes |
mbbls
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thousand barrels |
mmbbls
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million barrels |
mboe*
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thousand barrels of oil equivalent |
mmboe*
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million barrels of oil equivalent |
mmbtu
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million British thermal units |
mcf
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thousand cubic feet |
mmcf
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million cubic feet |
mcf per day
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thousand cubic feet per day |
mmcf per day
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million cubic feet per day |
* 6 mcf of gas = 1 barrel of oil |
PENGROWTH AND A STRONG COMMUNITY
Pengrowth believes in enhancing the
community where our employees live
and work. Pengrowth and Pengrowth
Management Limited support causes and
institutions both financially and through
volunteer efforts and are proud of these
associations and partnerships with many
community-building non-profit
organizations.
Pengrowth has a substantial investment
in our community though many of the
costs are attributed to Pengrowth
Management, Pengrowth Energy Trust
unitholders benefit through the visibility
associated with these vital partnerships.
STOCK EXCHANGE LISTINGS
The Toronto Stock Exchange:
Symbol: PGF.A / PGF.B
The New York Stock Exchange:
Symbol: PGH
PENGROWTH ENERGY TRUST
Head Office
Suite 2900, 240 4 Avenue S.W.
Calgary, Alberta T2P 4H4 Canada
Telephone: (403) 233-0224
Toll-Free: 1 800 223-4122
Facsimile: (403) 265-6251
Email: investorrelations@pengrowth.com
Website: http://www.pengrowth.com
Toronto Office
Scotia Plaza,, 40 King Street West
Suite 3006 Box 106
Toronto, Ontario M5H 3Y2 Canada
Telephone: (416) 362-1748
Toll-Free: 1 888 744-1111
Facsimile: (416) 362-8191
Halifax Office
Purdys Tower 1 Suite 1700
1959 Upper Water Street
Halifax, Nova Scotia B3J 2N2 Canada
Telephone: (902) 425-8778
Facsimile: (902) 425-7887
Contact: Jim MacDonald,
Director, East Coast Operations
London Office
33 St. James Square
London, England SW1 Y4JS
Telephone: 011 (44) 207-661-9591
Facsimile: 011 (44) 207-661-9592
INVESTOR RELATIONS
For investor relations enquiries, please
contact:
Investor Relations, Calgary
Telephone: (403) 233-0224
Toll-Free: 1 800 223-4122
Facsimile: (403) 294-0051
Email: investorrelations@pengrowth.com
or
Investor Relations, Toronto
Telephone: (416) 362-1748
Toll-Free: 1 888 744-1111
Facsimile: (416) 362-8191
Update Regarding Non-Resident Ownership and Mutual Fund Trust Status
The taxation of income trusts has become a highly topical matter in the press and a
national political issue as a result. Given the attention focused on these issues, Pengrowth
Energy Trust (Pengrowth) considers it prudent to provide unitholders with an update
concerning Pengrowths status as a mutual fund trust. Pengrowth adopted the Class A and
Class B trust unit structure to ensure that Pengrowth would satisfy the requirements of the
Income Tax Act (Canada) (the Tax Act) to be a mutual fund trust.
Mutual Fund Trust Status
Maintaining its status as a mutual fund trust under the Tax Act is of fundamental
importance to Pengrowth. If Pengrowth ceases to qualify as a mutual fund trust, there would
be a significant adverse effect on the value of the trust units. Losing its mutual fund
trust status would have significant negative tax consequences to Pengrowth and its
unitholders including:
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the trust units ceasing to be qualified investments for trusts governed
by RRSPs, RRIFs, RESPs and DPSPs; |
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Pengrowth would be required to pay a tax under Part XII.2 of the Tax Act that may have
additional adverse income tax consequences for certain unitholders, including non-resident
persons and certain of those persons who are exempt from tax under Part I of the Tax Act; |
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Pengrowth would not be entitled to use the capital gains refund mechanism otherwise
available for mutual fund trusts; and |
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the trust units would constitute taxable Canadian property for the purposes of the Tax
Act, potentially subjecting non-residents of Canada to tax pursuant to the Tax Act on the
disposition of the trust units. |
Generally speaking, in addition to several other requirements, a trust such as Pengrowth must
satisfy one of two tests to be a mutual fund trust under the Tax Act. The first test is a
benefit test that requires that the trust must not be established or maintained primarily for
the benefit of non-residents of Canada (which is generally interpreted to mean that the
majority of unitholders must be residents of Canada) (the Benefit Test). The second test is
a property test that requires that at all times after February 21, 1990 all or substantially
all of the trusts property must consist of property other than taxable Canadian property
(the Property Test). Pengrowth is aware that many of its competitors have significantly
greater than 50% non-resident ownership and are relying on the Property Test to maintain
their mutual fund trust status. For reasons that may be unique to Pengrowth, it was not
clear that Pengrowth could rely on the Property Test, because a sale and leaseback
transaction that Pengrowth entered into with Pengrowth Corporation in 1998 regarding certain
facilities at Judy Creek, which was itself the subject of an advance tax ruling from the
Canada Revenue Agency, may have resulted in Pengrowths taxable Canadian property exceeding
the threshold required by the Property Test. At the time of the sale and leaseback
transaction, Pengrowths non-resident ownership was less that 10% and there was no need to
rely on the Property Test.
Implementation of the Class A and Class B Trust Unit Structure
At the annual and special meeting of unitholders held on April 22, 2004, the
reclassification of our trust unit capital into Class A and Class B trust units was approved
by in excess of 95% of the votes cast at the meeting. The reclassification was recommended
by the Board of Directors to provide a mechanism to ensure that a majority of the outstanding
trust units, after an implementation period, would be held by residents of Canada. Class B
trust units can only be held by Canadian residents and they only trade on the TSX. Class A
trust units may be held by anyone and trade on the TSX and the NYSE. The reclassification
was implemented on July 27, 2004 by which time the level of non-resident ownership of trust
units had increased to approximately 56%.
Pengrowth Tax Ruling and Comfort Letter from the Department of Finance
Pengrowth received an advance tax ruling from the Canada Revenue Agency on July 26, 2004 and an
amended ruling on December 1, 2004 (collectively, the Pengrowth Tax Ruling) that state, in
effect, that Pengrowth will continue to be a mutual fund trust if it achieved a non-resident
ownership of less than 49.75% by June 1, 2005 and was a mutual fund trust prior to that date. On
November 26, 2004, Pengrowth received a comfort letter from the Department of Finance (Canada) (the
November Finance Letter) stating that the Department of Finance will recommend to the Minister of
Finance that an amendment be made to the Property Test that if enacted would clarify Pengrowths
ability to rely upon the Property Test. Although the amendment referred to in the November Finance
Letter has been proposed as an amendment to the Tax Act, it has not yet been enacted by Parliament.
As a result of equity issues completed during 2004 in conjunction with Pengrowths acquisition of
certain properties from Murphy Oil and the financing of Pengrowths capital programs, the issuance
of a majority of Class B trust units in respect to Pengrowths acquisition of Crispin Energy in
2005 and the issuance of Class B trust units in accordance with the Distribution Reinvestment
Program and other Pengrowth incentive plans, the ownership threshold of 49.75% was achieved prior
to June 1, 2005. Pengrowth may be unique among royalty trusts in being in strict compliance with a
tax ruling on residency matters.
Position of the Department of Finance
Considerable uncertainty has been caused by various announcements by the Federal Government
pertaining to the residency requirements for mutual fund trusts. The Federal Budget tabled by the
Minister of Finance on March 23, 2004 proposed several changes to Subsection 132(7) of the Tax Act
to the effect that the Property Test would generally no longer be available to royalty trusts after
December 31, 2004. Further amendments were proposed by the Department of Finance on September 16,
2004. On December 6, 2004, the minister of Finance tabled a Notice of Ways and Means Motion in the
House of Commons to implement measures proposed in the March 23, 2004 Federal Budget. However, the
changes to the mutual fund trust provisions proposed in the March 23, 2004 Federal Budget to remove
the Property Test were not included. The Minister of Finance indicated that further discussions
would be pursued with the private sector concerning the appropriate tax treatment of non-residents
investing in resource property through mutual funds. The February 23, 2005 Federal Budget
contained no new provisions in respect of the residency restrictions on mutual fund trusts.
Therefore, uncertainty remains as to whether or not the Property Test will be available to royalty
trusts such as Pengrowth indefinitely. Unfortunately, neither the timing nor the impact of any
legislative amendments can be predicted with certainty.
In addition, on September 8, 2005 the Federal government issued a consultation paper entitled Tax
and Other Issues Related to Publicly Listed Flow-Through Entities for the purpose of launching
consultations with stakeholders on tax issues related to business income trusts and other
flow-through entities. On September 19, 2005 the Minister of Finance announced that the Minister
of National Revenue had been requested to postpone providing any advance income tax rulings
respecting flow-through entity structures, including trusts, effective immediately.
Alternatives Available to Pengrowth
At present Pengrowth is maintaining the Class A and Class B trust unit structure in compliance
with the Pengrowth Tax Ruling. Until (i) Parliament enacts amendments to the Property Test in
accordance with the November Finance Letter or makes other changes to the Benefit Test under the
Tax Act and (ii) the Federal Government, following the current consultative process, provides
further guidance as to the taxation of income and royalty trusts generally and the relative effect
of foreign ownership, the Board of Directors believes that it would be prudent for Pengrowth to
maintain the current A/B structure.
The Board of Directors has determined that Pengrowth should maintain maximum possible flexibility
to respond appropriately to legislative amendments as they occur. In the interim, maintaining the
A/B structure enables Pengrowth to remain in compliance with the Pengrowth Tax Ruling and to gain
access to international capital markets through the sale of Class A trust units.
Once the Federal Government clarifies the existing uncertainty regarding non-resident ownership and
the taxation of mutual fund trusts and their unitholders, the Board of Directors may determine that
it is in the best interests of all unitholders to: (a) remove the residency restrictions pertaining
to the holding of Class B trust
units; (b) permit a free conversion of Class B trust units to Class A trust units; (c) permit the
consolidation of the trust unit capital of Pengrowth; (d) allow a conversion of Class B trust units
to Class A trust units over time to preserve an orderly market; (e) maintain the Class A and Class
B trust unit structure until market circumstances become more favorable to both classes of
unitholders; or (f) take such other action as the Board of Directors may consider appropriate.
FORM 52-109FT2
CERTIFICATION OF INTERIM FILINGS DURING TRANSITION PERIOD
I, JAMES S. KINNEAR, Chairman, President and Chief Executive Officer of Pengrowth Corporation,
certify that:
1. |
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I have reviewed the interim filings (as this term is defined in Multilateral Instrument
52-109 Certification of Disclosure in Issuers Annual and Interim Filings) of Pengrowth Energy
Trust, (the issuer) for the interim period ending September 30, 2005; |
2. |
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Based on my knowledge, the interim filings do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was made, with respect
to the period covered by the interim filings; and |
3. |
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Based on my knowledge, the interim financial statements together with the other financial
information included in the interim filings fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer, as of the date and
for the periods presented in the interim filings. |
DATED November 10, 2005.
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James S. Kinnear
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Signature |
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Chairman, President and |
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Chief Executive Officer |
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Title |
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FORM 52-109FT2
CERTIFICATION OF INTERIM FILINGS DURING TRANSITION PERIOD
I, CHRISTOPHER G. WEBSTER, Chief Financial Officer of Pengrowth Corporation, certify that:
1. |
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I have reviewed the interim filings (as this term is defined in Multilateral Instrument
52-109 Certification of Disclosure in Issuers Annual and Interim Filings) of Pengrowth Energy
Trust, (the issuer) for the interim period ending September 30, 2005; |
2. |
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Based on my knowledge, the interim filings do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was made, with respect
to the period covered by the interim filings; and |
3. |
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Based on my knowledge, the interim financial statements together with the other financial
information included in the interim filings fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer, as of the date and
for the periods presented in the interim filings. |
DATED November 10, 2005.
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Christopher G. Webster
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Signature |
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Chief Financial Officer |
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Title |
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