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 July 27, 2007 to August 1, 2007
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. |
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Press Release announcing second quarter 2007 results. |
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
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August 1, 2007 |
By: |
/s/ Gordon M. Anderson
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Name: |
Gordon M. Anderson |
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Title: |
Vice President |
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PENGROWTH
ENERGY TRUST - 1 -
NEWS RELEASE
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Attention: Financial Editors
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Stock Symbol:
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(PGF.UN) -TSX;
(PGH) NYSE |
PENGROWTH ENERGY TRUST ANNOUNCES
SECOND QUARTER 2007 RESULTS
(Calgary, August 1, 2007) /Marketwire/ Pengrowth Corporation, administrator of Pengrowth
Energy Trust (collectively Pengrowth), is pleased to announce the interim unaudited operating and
financial results for the three month and six month periods ended June 30, 2007.
Pengrowth reported net income of $271.7 million ($1.11 per trust unit) in the second quarter of
2007 compared to a net loss of $69.8 million ($0.29 per trust unit) in the first quarter of 2007
and net income of $110.1 million ($0.69 per trust unit) in the same period last year. Net income
in the quarter included a $147.7 million increase in earnings due to a future tax recovery. The
future tax recovery was recorded as a result of the enactment of the previously announced tax on
income trusts, asset dispositions in the quarter and a reduction in the federal income tax rate.
During the second quarter of 2007, Pengrowth generated distributable cash of $196.9 million
versus $199.4 million in the first quarter of 2007 and $152.3 million in the second quarter of
2006. Distributions paid or declared to unitholders in the second quarter of 2007 totaled $184.3
million or $0.75 per trust unit reflecting a payout ratio of 94 percent. Pengrowths distributions
remain unchanged at $0.25 per trust unit per month, up to and including our most recently announced
August 15, 2007 distribution.
Daily production remained relatively stable in the second quarter of 2007 at 89,633 boe per day
when compared to the first quarter of 2007 and increased approximately 59 percent when compared to
the second quarter of 2006. The increase is primarily due to the Carson Creek, Esprit Trust and
the CP properties acquisitions, SOEP compression and contributions from our ongoing development
activities. Pengrowth anticipates full year average daily production in the range of 85,000 boe
per day to 87,500 boe per day including the expected divestiture of 8,900 boe per day of production
at the time of sale.
Development capital for the second quarter of 2007 totaled $44.4 million with approximately 82
percent spent on drilling and completions. Pengrowth participated in drilling 34 gross (15.3 net)
wells with a success rate of 94 percent. In addition, Pengrowth participated in the drilling of
three injection and one water disposal well (0.9 net).
During 2007, Pengrowth intends to dispose of approximately $450 million of non-core properties.
In the first half of this year, Pengrowth completed asset sales for proceeds of approximately
$282 million. The proceeds were used to partially repay the $600 million bridge facility.
Subsequent to the end of second quarter, Pengrowth closed a U.S. $400 million offering of
notes issued on a private placement basis on July 26, 2007 in the United States. The private
placement consists of 6.35 percent notes due in 2017. The notes are unsecured and rank equally
with Pengrowths bank facilities and existing term notes.
Note regarding currency: all figures contained within this report are quoted in Canadian dollars
unless otherwise indicated.
PENGROWTH
ENERGY TRUST - 2 -
Presidents Message
To our valued unitholders,
The second quarter of 2007 marked further progress in Pengrowths continued transformation and I am
pleased to present the unaudited quarterly results for the three months and six months ended June
30, 2007. Pengrowth performed well during the second quarter. We continued to see positive results from
our operations and remain well positioned for a generally favourable second half of 2007.
In my annual letter dated February 26, 2007, we set out a number of goals and objectives for the
trust in 2007 and I would like to take this opportunity to update our progress on each of these key
targets at this pivotal mid-year mark.
2007 key targets include:
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1) |
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Execution of a $275 million capital development program that is focused on asset
optimization and organic growth. |
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2) |
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Full integration of the assets and people associated with the Carson Creek, Esprit
Trust and CP properties acquisitions in order to fully exploit those opportunities
identified by our operations teams. |
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3) |
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Completion of our property disposition program. |
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4) |
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Continuing to make distributions to unitholders while executing a prudent business
model. |
Pengrowth remained focused on development opportunities during the quarter and continued to achieve
encouraging results. Pengrowths capital development program totaled approximately $44.4 million
in the second quarter with approximately 82 percent directed towards drilling and completions.
Pengrowth participated in drilling 34 gross wells (15.3 net) with a success rate of 94 percent. In
addition, we participated in the drilling of three injectors and one water disposal well (0.9 net).
Production for the second quarter of 2007 remained relatively stable with average daily production
of 89,633 barrels of oil equivalent (boe) per day when compared to the first quarter of 2007 and
increased approximately 59 percent when compared to the second quarter of 2006. The increase is
mainly attributable to production additions associated with the Carson Creek, Esprit Trust and CP
properties acquisitions which closed in the second half of 2006 and early 2007 and were augmented
by our capital development program. These additions served to nearly offset natural production
declines and the impact of our divestiture program. Based on these results, Pengrowth has increased
its forecast for average 2007 production to the range of 85,000 to 87,500 boe per day.
Integration activities associated with the Carson Creek, Esprit Trust and CP properties
acquisitions continued into the second quarter. The Carson Creek and Esprit properties have been
completely integrated into our asset teams. Work is being done to reroute some gas from Carson
Creek to Judy Creek and evaluation is underway for potentially moving all the gas from this area to
Judy Creek. These optimizations are expected to result in significant operating cost savings.
Optimization of gas processing has been identified for the Harmattan and Olds properties which will
significantly reduce costs incurred due to third party arrangements. Pengrowth has been successful
in the hiring of a significant number of experienced technical staff to work on these
opportunities. Pengrowth took over full management of the CP properties in June after completion of
the transition services contract from ConocoPhillips. Upside in the Deer Mountain, Goose River &
Red Earth properties has been identified with projects underway for the third and fourth quarters.
Pengrowth has one of the strongest property portfolios in the energy trust sector. In conjunction
with the integration of the new assets into our operations, we have realized the opportunity to
high-grade our asset base through a targeted disposition program of approximately $450 million of
non-core assets producing approximately 8,900 boe per day at the time of sale.
In the first half of the year, Pengrowth completed asset sales of approximately $282 million. The
proceeds were used to partially repay the $600 million bridge facility associated with the CP
properties acquisition and Pengrowth now anticipates our disposition program to be completed prior
to year end 2007. Pengrowths remaining high quality, long-life assets provide the trust with a
stable production profile.
PENGROWTH
ENERGY TRUST - 3 -
Oil and gas sales remained reasonably favourable during the second quarter benefiting from
Pengrowths balanced production mix. On July 31, 2007, WTI oil prices reached a new record closing
level of U.S. $78.22 per barrel. However, offsetting the strength in crude oil has been the recent
decline in natural gas prices to the U.S. $6.00 to $6.50 per mmbtu range. In addition, the
relative strength of the Canadian dollar in relation to the U.S. dollar to the $0.95 range has
moderated the effect on oil and gas prices in Canadian dollars. As
a result, distributable cash decreased slightly to $196.9 million when compared to the first
quarter of 2007 in which $199.4 million was recorded.
Distributions to unitholders during the quarter totaled $0.75 per trust unit and Pengrowth has
maintained the monthly distribution at $0.25 per trust unit since December 31, 2005. However,
distributions can and may fluctuate in the future. Distributable cash is derived mainly from
producing and selling our oil, natural gas and related products and as such, distributable cash is
highly dependent on commodity prices. Pengrowths board of directors will continue to examine
distributions on a monthly basis while considering overall market conditions to set the
distribution level each month.
I am pleased to report that we have made significant progress on our key targets in 2007 and we
continue to seek opportunities through acquisition, industry consolidation, development and
synergies to add value on behalf of our unitholders. As such, it remains paramount that the trust
retain the necessary financial flexibility to capitalize on future growth opportunities.
Accordingly, Pengrowth has taken steps to reduce indebtedness and strengthen its financial
position.
On June 15, 2007, Pengrowth increased its syndicated bank facility to $1.2 billion of available
credit and extended the maturity date to June 16, 2010. On July 13, 2007, with proceeds from
Pengrowths increased bank facility, Pengrowth fully repaid the remaining $322 million outstanding
on the $600 million bridge facility due January 22, 2008 obtained in conjunction with the CP
properties acquisition.
Also subsequent to quarter-end, Pengrowth closed a U.S. $400 million offering of notes issued on a
private placement basis on July 26, 2007 in the United States. The private placement consists of
6.35 percent notes due in 2017. The notes are unsecured and rank equally with Pengrowths bank
facilities and existing term notes and we intend to use the net proceeds of the notes to reduce
amounts outstanding on our bank facilities which will increase our unused credit capacity. This
increased financial flexibility gives Pengrowth unused credit capacity at this time of
approximately $580 million which should allow us to complete future value-adding transactions
should they arise.
The second quarter showcased our teams commitment to seek out opportunities to add value on behalf
of unitholders through the successful execution of our 2007 key targets thus far. I am pleased with
the accomplishments our team achieved during the period and I believe we are well positioned both
operationally and financially for continued success in 2007.
James S. Kinnear
Chairman, President and Chief Executive Officer
August 1, 2007
PENGROWTH
ENERGY TRUST - 4 -
Summary of Financial and Operating Results
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Three Months ended June 30 |
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Six Months ended June 30 |
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(thousands, except per unit amounts) |
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2007 |
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2006 |
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% Change |
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2007 |
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2006 |
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% Change |
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INCOME STATEMENT |
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Oil and gas sales |
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$ |
443,977 |
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$ |
283,532 |
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57 |
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$ |
876,085 |
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$ |
575,428 |
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52 |
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Net income |
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$ |
271,659 |
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$ |
110,116 |
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|
147 |
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$ |
201,825 |
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$ |
176,451 |
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14 |
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Net income per trust unit |
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$ |
1.11 |
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$ |
0.69 |
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|
61 |
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$ |
0.82 |
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$ |
1.10 |
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(25 |
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CASH FLOW |
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Cash flows from operating activities (1) |
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$ |
249,960 |
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$ |
126,800 |
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|
97 |
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$ |
386,389 |
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$ |
283,160 |
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36 |
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Cash flows from operating activities per trust unit |
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$ |
1.02 |
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$ |
0.79 |
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|
29 |
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$ |
1.58 |
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$ |
1.77 |
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(11 |
) |
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Distributable cash * (2) |
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$ |
196,934 |
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$ |
152,266 |
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29 |
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$ |
396,328 |
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$ |
293,135 |
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35 |
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Distributable cash per trust unit * (2) |
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$ |
0.80 |
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$ |
0.95 |
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(16 |
) |
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$ |
1.62 |
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$ |
1.83 |
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(11 |
) |
Distributions paid or declared |
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$ |
184,327 |
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$ |
120,597 |
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53 |
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$ |
367,861 |
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$ |
240,899 |
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|
53 |
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Distributions paid or declared per trust unit |
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$ |
0.75 |
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$ |
0.75 |
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$ |
1.50 |
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$ |
1.50 |
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Payout ratio* (2) |
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|
94 |
% |
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|
79 |
% |
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15 |
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93 |
% |
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|
82 |
% |
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|
11 |
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Capital expenditures |
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$ |
49,467 |
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$ |
47,999 |
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|
3 |
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|
$ |
148,252 |
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|
$ |
123,060 |
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|
|
20 |
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Capital expenditures per trust unit |
|
$ |
0.20 |
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|
$ |
0.30 |
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(33 |
) |
|
$ |
0.61 |
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|
$ |
0.77 |
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(21 |
) |
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Weighted average number of trust units outstanding |
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|
245,127 |
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|
160,592 |
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53 |
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|
244,745 |
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|
160,372 |
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53 |
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BALANCE SHEET |
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Working capital |
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$ |
(444,394 |
) |
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$ |
(97,150 |
) |
|
|
357 |
|
Property, plant and equipment |
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|
|
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$ |
4,633,861 |
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$ |
2,081,403 |
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|
|
123 |
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Long term debt |
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$ |
1,038,328 |
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|
$ |
488,310 |
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|
|
113 |
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Trust unitholders equity |
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|
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|
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$ |
2,913,152 |
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|
$ |
1,430,850 |
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|
|
104 |
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Trust unitholders equity per trust unit |
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|
|
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|
|
|
|
|
|
|
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|
$ |
11.86 |
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|
$ |
8.90 |
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|
|
33 |
|
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Number of trust units outstanding at period end |
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|
245,560 |
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|
160,777 |
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|
53 |
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DAILY PRODUCTION |
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Crude oil (barrels) |
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|
27,083 |
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|
|
20,342 |
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33 |
|
|
|
27,271 |
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|
20,800 |
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|
31 |
|
Heavy oil (barrels) |
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|
7,254 |
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|
|
4,869 |
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|
49 |
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|
|
7,015 |
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|
|
4,943 |
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|
42 |
|
Natural gas (mcf) |
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|
280,667 |
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|
|
150,976 |
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|
|
86 |
|
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|
278,096 |
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|
154,407 |
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|
80 |
|
Natural gas liquids (barrels) |
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|
8,519 |
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|
|
5,952 |
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|
43 |
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|
|
9,215 |
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|
|
6,101 |
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|
51 |
|
Total production (boe) |
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|
89,633 |
|
|
|
56,325 |
|
|
|
59 |
|
|
|
89,850 |
|
|
|
57,578 |
|
|
|
56 |
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|
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TOTAL PRODUCTION (mboe) |
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|
8,157 |
|
|
|
5,126 |
|
|
|
59 |
|
|
|
16,263 |
|
|
|
10,422 |
|
|
|
56 |
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PRODUCTION
PROFILE |
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Crude oil |
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|
30 |
% |
|
|
36 |
% |
|
|
|
|
|
|
30 |
% |
|
|
36 |
% |
|
|
|
|
Heavy oil |
|
|
8 |
% |
|
|
9 |
% |
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|
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|
|
8 |
% |
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|
8 |
% |
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Natural gas |
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|
52 |
% |
|
|
45 |
% |
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|
|
|
|
52 |
% |
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|
45 |
% |
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|
Natural gas liquids |
|
|
10 |
% |
|
|
10 |
% |
|
|
|
|
|
|
10 |
% |
|
|
11 |
% |
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|
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AVERAGE REALIZED PRICES (after commodity
risk management) |
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Crude oil (per barrel) |
|
$ |
71.81 |
|
|
$ |
72.67 |
|
|
|
(1 |
) |
|
$ |
69.52 |
|
|
$ |
67.91 |
|
|
|
2 |
|
Heavy oil (per barrel) |
|
$ |
43.52 |
|
|
$ |
50.07 |
|
|
|
(13 |
) |
|
$ |
42.57 |
|
|
$ |
39.52 |
|
|
|
8 |
|
Natural gas (per mcf) |
|
$ |
7.61 |
|
|
$ |
6.76 |
|
|
|
13 |
|
|
$ |
7.76 |
|
|
$ |
7.77 |
|
|
|
|
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Natural gas liquids (per barrel) |
|
$ |
56.42 |
|
|
$ |
58.92 |
|
|
|
(4 |
) |
|
$ |
52.81 |
|
|
$ |
58.57 |
|
|
|
(10 |
) |
Average realized price per boe |
|
$ |
54.39 |
|
|
$ |
54.91 |
|
|
|
(1 |
) |
|
$ |
53.85 |
|
|
$ |
54.98 |
|
|
|
(2 |
) |
|
|
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(1) |
|
Prior year restated. See Note 1 to financial statements.
|
|
(2) |
|
Prior year restated to conform to
presentation adopted in current year. |
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* |
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See the
section entitled Non-GAAP Financial Measures. |
PENGROWTH
ENERGY TRUST - 5 -
Summary of Trust Unit Trading Data
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Three Months ended |
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Six Months ended |
|
|
|
June 30 |
|
|
June 30 |
|
(thousands, except per trust unit amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
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TRUST UNIT TRADING (Class A)
PGH (NYSE) |
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|
|
|
|
High |
|
$ |
19.84 |
U.S. |
|
$ |
25.00 |
U.S. |
|
$ |
19.84 |
U.S. |
|
$ |
25.15 |
U.S. |
Low |
|
$ |
16.45 |
U.S. |
|
$ |
21.85 |
U.S. |
|
$ |
15.82 |
U.S. |
|
$ |
21.50 |
U.S. |
Close |
|
$ |
19.09 |
U.S. |
|
$ |
24.09 |
U.S. |
|
$ |
19.09 |
U.S. |
|
$ |
24.09 |
U.S. |
Value |
|
$ |
428,571 |
U.S. |
|
$ |
336,990 |
U.S. |
|
$ |
877,712 |
U.S. |
|
$ |
653,208 |
U.S. |
Volume |
|
|
23,668 |
|
|
|
14,277 |
|
|
|
50,301 |
|
|
|
27,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PGF.A (TSX) * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
|
|
|
$ |
28.50 |
|
|
$ |
|
|
|
$ |
28.96 |
|
Low |
|
$ |
|
|
|
$ |
24.20 |
|
|
$ |
|
|
|
$ |
24.20 |
|
Close |
|
$ |
|
|
|
$ |
26.70 |
|
|
$ |
|
|
|
$ |
26.70 |
|
Value |
|
$ |
|
|
|
$ |
47,608 |
|
|
$ |
|
|
|
$ |
81,449 |
|
Volume |
|
|
|
|
|
|
1,810 |
|
|
|
|
|
|
|
3,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRUST UNIT TRADING (Class B)
PGF.B (TSX) * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
|
|
|
$ |
26.05 |
|
|
$ |
|
|
|
$ |
26.05 |
|
Low |
|
$ |
|
|
|
$ |
22.41 |
|
|
$ |
|
|
|
$ |
20.71 |
|
Close |
|
$ |
|
|
|
$ |
26.05 |
|
|
$ |
|
|
|
$ |
26.05 |
|
Value |
|
$ |
|
|
|
$ |
459,628 |
|
|
$ |
|
|
|
$ |
879,690 |
|
Volume |
|
|
|
|
|
|
18,982 |
|
|
|
|
|
|
|
37,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PGF.UN (TSX) * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
21.04 |
|
|
$ |
|
|
|
$ |
21.04 |
|
|
$ |
|
|
Low |
|
$ |
18.82 |
|
|
$ |
|
|
|
$ |
18.62 |
|
|
$ |
|
|
Close |
|
$ |
20.27 |
|
|
$ |
|
|
|
$ |
20.27 |
|
|
$ |
|
|
Value |
|
$ |
561,471 |
|
|
$ |
|
|
|
$ |
1,306,290 |
|
|
$ |
|
|
Volume |
|
|
28,348 |
|
|
|
|
|
|
|
66,090 |
|
|
|
|
|
|
|
|
* |
|
July 27, 2006, Pengrowths Class A trust units and Class B trust units were
consolidated into a single class of trust units whereas the Class A trust units
were delisted from the Toronto Stock Exchange and the Class B trust units were
renamed as trust units and their trading symbol changed to PGF.UN. |
PENGROWTH
ENERGY TRUST - 6 -
The following discussion of financial results should be read in conjunction with the interim
unaudited consolidated financial statements for the six months ended June 30, 2007 and the audited
consolidated financial statements for the year ended December 31, 2006 of Pengrowth Energy Trust
and is based on information available to August 1, 2007.
Frequently Recurring Terms
For the purposes of this discussion, we use certain frequently recurring terms as follows: the
Trust refers to Pengrowth Energy Trust, the Corporation refers to Pengrowth Corporation,
Pengrowth refers to the Trust and its subsidiaries and the Corporation on a consolidated basis
and the Manager refers to Pengrowth Management Limited.
Pengrowth uses the following frequently recurring industry terms in this discussion: bbls refers
to barrels, boe refers to barrels of oil equivalent, mboe refers to a thousand barrels of oil
equivalent, mcf refers to thousand cubic feet, gj refers to gigajoule and mmbtu refers to
million British thermal units.
Advisory Regarding Forward-Looking Statements
This discussion contains forward-looking statements within the meaning of securities laws,
including the safe harbour provisions of Canadian securities legislation and the United States
Private Securities Litigation Reform Act of 1995. Forward-looking information is often, but not
always, identified by the use of words such as anticipate, believe, expect, plan, intend,
forecast, target, project, guidance may, will, should, could, estimate, predict
or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking
statements in this discussion include, but are not limited to, statements with respect to:
reserves, 2007 production, production additions from Pengrowths 2007 development program, the
impact on production of divestitures in 2007, royalty obligations, 2007 operating expenses, future
income taxes, goodwill, asset retirement obligations, taxability of distributions, remediation and
abandonment expenses, capital expenditures, new head office expenses, general and administration
expenses, proceeds from the disposal of properties and the impact of the proposed changes to the
Canadian tax legislation. Statements relating to reserves are deemed to be forward-looking
statements, as they involve the implied assessment, based on certain estimates and assumptions that
the reserves described exist in the quantities predicted or estimated and can profitably be
produced in the future.
Forward-looking statements and information are based on Pengrowths current beliefs as well as
assumptions made by and information currently available to Pengrowth concerning anticipated
financial performance, business prospects, strategies, regulatory developments, future oil and
natural gas commodity prices and differentials between light, medium and heavy oil prices, future
oil and natural gas production levels, future exchange rates, the proceeds of anticipated
divestitures, the amount of future cash distributions paid by Pengrowth, the cost of expanding our
property holdings, our ability to obtain equipment in a timely manner to carry out development
activities, our ability to market our oil and natural gas successfully to current and new
customers, the impact of increasing competition, our ability to obtain financing on acceptable
terms and our ability to add production and reserves through our development and exploitation
activities. Although management considers these assumptions to be reasonable based on information
currently available to it, they may prove to be incorrect.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both
general and specific, and risks that predictions, forecasts, projections and other forward-looking
statements will not be achieved. We caution readers not to place undue reliance on these
statements as a number of important factors could cause the actual results to differ materially
from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions
expressed in such forward-looking statements. These factors include, but are not limited to: the
volatility of oil and gas prices; production and development costs and capital expenditures; the
imprecision of reserve estimates and estimates of recoverable quantities of oil, natural gas and
liquids; Pengrowths ability to replace and expand oil and gas reserves; environmental claims and
liabilities; incorrect assessments of value when making acquisitions; increases in debt service
charges; the loss of key personnel; the marketability of production; defaults by third party
operators; unforeseen title defects; fluctuations in foreign currency and exchange rates;
inadequate insurance coverage; compliance with environmental laws and regulations; changes in tax
laws; the failure to qualify as a mutual fund trust; and Pengrowths ability to access external
sources of debt and equity capital. Further information regarding these factors may be found under
the heading Business Risks herein and under
Risk Factors in Pengrowths most recent Annual Information Form (AIF), and in Pengrowths most
recent consolidated financial statements, management information circular, quarterly reports,
material change reports and news releases. Copies of the Trusts Canadian public filings are
available on SEDAR at www.sedar.com. The Trusts U.S. public filings, including the Trusts most
recent annual report form 40-F as supplemented by its filings on form 6-K, are available at
www.sec.gov.
PENGROWTH
ENERGY TRUST - 7 -
Pengrowth cautions that the foregoing list of factors that may affect future results is not
exhaustive. When relying on our forward-looking statements to make decisions with respect to
Pengrowth, investors and others should carefully consider the foregoing factors and other
uncertainties and potential events. Furthermore, the forward-looking statements contained in this
discussion are made as of the date of this discussion and Pengrowth does not undertake any
obligation to update publicly or to revise any of the included forward-looking statements, whether
as a result of new information, future events or otherwise, except as required by law. The
forward-looking statements contained in this discussion are expressly qualified by this cautionary
statement.
Critical Accounting Estimates
As discussed in Note 1 to the financial statements, the financial statements are prepared in
accordance with Canadian Generally Accepted Accounting Principles (GAAP). Management is required
to make estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and revenues and expenses for the period ended.
The amounts recorded for depletion, depreciation and amortization of injectants and the provision
for asset retirement obligations, goodwill and future taxes are based on estimates. The ceiling
test calculation is based on estimates of proved reserves, production rates, oil and natural gas
prices, future costs and other relevant assumptions. As required by National Instrument 51-101 (NI
51-101) Standards of Disclosure for Oil and Gas Activities, Pengrowth uses independent qualified
reserve evaluators in the preparation of reserve evaluations. By their nature, these estimates are
subject to measurement uncertainty and changes in these estimates may impact the consolidated
financial statements of future periods. The amounts recorded for the fair value of risk management
contracts and the unrealized gains or losses on the change in fair value are based on estimates.
These estimates can change significantly from period to period.
Non-GAAP Financial Measures
This discussion refers to certain financial measures that are not determined in accordance with
GAAP in Canada or the United States. These measures do not have standardized meanings and may not
be comparable to similar measures presented by other trusts or corporations. Measures such as
funds generated from operations, funds generated from operations per trust unit, distributable
cash, distributable cash per trust unit, payout ratio and operating netbacks do not have
standardized meanings prescribed by GAAP. We discuss these measures because we believe that they
facilitate the understanding of the results of our operations and financial position.
Conversion and Currency
When converting natural gas to equivalent barrels of oil within this discussion, Pengrowth uses
the industry standard of six thousand cubic feet to one barrel of oil equivalent. Barrels of oil
equivalent may be misleading, particularly if used in isolation; a conversion ratio of six mcf of
natural gas to one boe is based on an energy equivalency conversion method primarily applicable at
the burner tip and does not represent a value equivalency at the wellhead. Production volumes,
revenues and reserves are reported on a company interest gross basis (before royalties) in
accordance with Canadian practice. All amounts are stated in Canadian dollars unless otherwise
specified.
OVERVIEW
Production for the second quarter of 2007 was 89,633 boe per day compared to 90,068 boe per day
in the prior quarter reflecting a full quarter of additional volumes from the January 2007
ConocoPhillips (the CP properties) acquisition and internal development and was offset by planned
maintenance shutdowns and property divestments. For the six months ended June 30, 2007, production
was 89,850 boe per day compared to 57,578 boe per day in the prior year. This increase is
primarily due to additional volumes from acquisitions made in the second half of 2006 and early
2007. Pengrowth had net income for the second quarter of $271.7 million due in part to an
unrealized mark-to-market gain on outstanding commodity contracts of $79.7 million resulting from
the change in the fair value of the contracts during the period and a future income tax reduction
in the amount of $147.7 million (see Taxes section for additional information).
These non-cash amounts do not affect distributable cash for the quarter which was $196.9 million
compared to $199.4 million in the prior quarter and $152.3 million in the second quarter of 2006.
PENGROWTH ENERGY TRUST -8-
RESULTS OF OPERATIONS
This discussion contains the results of Pengrowth Energy Trust and its subsidiaries.
Production
Average daily production remained relatively stable in the second quarter of 2007 compared to
the first quarter of 2007. The slight decrease is primarily attributable to additional volumes
from the CP properties acquisition which closed on January 22, 2007 being offset by planned
maintenance shutdowns and non-core property divestments. In comparison to the second quarter of
2006, average daily production increased approximately 59 percent. In addition to the volumes from
the CP properties acquisition, the increase is largely due to the Carson Creek and Esprit Trust
acquisitions which were completed late in the third quarter and in the fourth quarter of 2006,
respectively, and contributions from ongoing development activities. Daily production for the
first half of 2007 increased approximately 56 percent compared to the same period of 2006. This is
primarily due to the previously mentioned acquisitions made in the third and fourth quarters of
2006 and in January 2007.
At this time, Pengrowth anticipates 2007 full year production of 85,000 to 87,500 boe per day.
This estimate reflects expected divestitures during the year of approximately 8,900 boe per day of
production at the time of sale. The above estimate excludes the impact from any potential future
acquisitions.
Daily Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
Light crude oil (bbls) |
|
|
27,083 |
|
|
|
27,461 |
|
|
|
20,342 |
|
|
|
27,271 |
|
|
|
20,800 |
|
Heavy oil (bbls) |
|
|
7,254 |
|
|
|
6,773 |
|
|
|
4,869 |
|
|
|
7,015 |
|
|
|
4,943 |
|
Natural gas (mcf) |
|
|
280,667 |
|
|
|
275,495 |
|
|
|
150,976 |
|
|
|
278,096 |
|
|
|
154,407 |
|
Natural gas liquids (bbls) |
|
|
8,519 |
|
|
|
9,918 |
|
|
|
5,952 |
|
|
|
9,215 |
|
|
|
6,101 |
|
|
Total boe per day |
|
|
89,633 |
|
|
|
90,068 |
|
|
|
56,325 |
|
|
|
89,850 |
|
|
|
57,578 |
|
|
Light crude oil production decreased one percent in the second quarter of 2007 compared to the
first quarter of 2007. Property divestments in the second quarter more than offset the additional
volumes from a full quarter of the CP properties acquisition. Production volumes increased 33
percent in the second quarter of 2007 compared to the second quarter of 2006 and 31 percent for the
first half of 2007 compared to the same period in 2006. This increase is primarily due to the
addition of approximately 8,700 bbls per day from the CP properties, Esprit Trust and Carson Creek
acquisitions that more than offset natural production declines.
Heavy oil production increased seven percent in the second quarter of 2007 compared to the first
quarter of 2007 and 49 percent compared to the second quarter of 2006. Production increased 42
percent in the first half of 2007 versus the first half of 2006. Additional volumes from the CP
properties acquisition were partially offset by production declines and property divestments.
Natural gas production increased two percent compared to the first quarter of 2007. Additional
volumes due to the Sable Offshore Energy Project (SOEP) compression project and the CP properties
acquisition mostly offset impacts from planned maintenance shutdowns, property divestments and
natural declines. In addition to the above increases, second quarter production increased 86
percent compared to the second quarter of 2006 due to the Esprit Trust and Carson Creek
acquisitions, partially offset by production decline. Production for the first half of 2007
increased 80 percent from the first half of 2006.
Natural gas liquids (NGLs) production decreased 14 percent versus the first quarter of 2007. The
main reason for the decrease was lower NGL production being sold at Judy Creek compared to the
first quarter of 2007 because additional volumes were being used to meet miscible flooding
requirements. Compared to the second quarter of 2006, production is up approximately 43 percent due
to additional volumes from the Esprit Trust, Carson Creek and CP properties acquisitions.
Production for the first half of 2007 increased 51 percent due to the acquisitions.
Pricing and Commodity Risk Management
Compared to the prior quarter, higher U.S. dollar benchmark prices for crude oil and liquids
were partially offset by lower natural gas market prices and the strengthening of the Canadian
dollar.
As part of our financial management strategy, Pengrowth uses forward price swap and option
contracts to manage its exposure to commodity price fluctuations, to provide a measure of stability
to monthly cash
PENGROWTH
ENERGY TRUST - 9 -
distributions and to partially secure returns on significant new acquisitions. Thus, in
conjunction with the CP properties acquisition, Pengrowth increased the volume of commodity price
risk management contracts. Pengrowth has committed approximately 15,000 bbls per day and 9,300 bbls
per day of crude oil and 100,000 mcf per day and 60,000 mcf per day of natural gas for the
remainder of 2007 and 2008, respectively. Each $1 per barrel change in future oil prices would
result in approximately $6 million change in the value of the crude contracts. Similarly, each
$0.50 per mcf change in future natural gas prices would result in a $19 million change in the value
of the natural gas contracts.
In prior periods, hedge accounting was followed for commodity risk management contracts entered
into prior to May 2006 and therefore fair valuation and recording of these contracts was not
required by GAAP. Pengrowth has not designated currently outstanding commodity contracts as hedges
for accounting purposes and therefore must record these contracts on the balance sheet at their
fair value and recognize changes in fair value on the statement of income as unrealized commodity
risk management gains or losses. There will continue to be volatility in earnings to the extent
that the fair value of commodity contracts fluctuates, however, these non-cash amounts do not
impact Pengrowths operating cash flows. Realized commodity risk management gains or losses are
recorded in oil and gas sales on the statement of income.
Average Realized Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
(Cdn$) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
Light crude oil (per bbl) |
|
|
69.61 |
|
|
|
63.59 |
|
|
|
75.67 |
|
|
|
66.59 |
|
|
|
70.27 |
|
after realized commodity risk management |
|
|
71.81 |
|
|
|
67.24 |
|
|
|
72.67 |
|
|
|
69.52 |
|
|
|
67.91 |
|
Heavy oil (per bbl) |
|
|
43.52 |
|
|
|
41.54 |
|
|
|
50.07 |
|
|
|
42.57 |
|
|
|
39.52 |
|
Natural gas (per mcf) |
|
|
7.41 |
|
|
|
7.59 |
|
|
|
6.69 |
|
|
|
7.50 |
|
|
|
7.72 |
|
after realized commodity risk management |
|
|
7.61 |
|
|
|
7.91 |
|
|
|
6.76 |
|
|
|
7.76 |
|
|
|
7.77 |
|
Natural gas liquids (per bbl) |
|
|
56.42 |
|
|
|
49.67 |
|
|
|
58.92 |
|
|
|
52.81 |
|
|
|
58.57 |
|
|
Total per boe |
|
|
53.10 |
|
|
|
51.22 |
|
|
|
55.80 |
|
|
|
52.17 |
|
|
|
55.71 |
|
after realized commodity risk management |
|
|
54.39 |
|
|
|
53.30 |
|
|
|
54.91 |
|
|
|
53.85 |
|
|
|
54.98 |
|
|
Benchmark prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI oil (U.S.$ per bbl) |
|
|
64.98 |
|
|
|
58.23 |
|
|
|
70.72 |
|
|
|
61.63 |
|
|
|
67.13 |
|
AECO spot gas (Cdn$ per gj) |
|
|
6.99 |
|
|
|
7.07 |
|
|
|
5.95 |
|
|
|
7.03 |
|
|
|
7.37 |
|
NYMEX gas (U.S.$ per mmbtu) |
|
|
7.55 |
|
|
|
6.77 |
|
|
|
6.76 |
|
|
|
7.16 |
|
|
|
7.87 |
|
Currency (U.S.$/Cdn$) |
|
|
0.90 |
|
|
|
0.87 |
|
|
|
0.89 |
|
|
|
0.88 |
|
|
|
0.88 |
|
|
Realized Commodity Risk Management Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
Light crude oil ($ millions) |
|
|
5.5 |
|
|
|
9.0 |
|
|
|
(5.6 |
) |
|
|
14.5 |
|
|
|
(8.9 |
) |
Light crude oil ($ per bbl) |
|
|
2.20 |
|
|
|
3.65 |
|
|
|
(3.00 |
) |
|
|
2.93 |
|
|
|
(2.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas ($ millions) |
|
|
5.1 |
|
|
|
7.8 |
|
|
|
1.0 |
|
|
|
12.9 |
|
|
|
1.3 |
|
Natural gas ($ per mcf) |
|
|
0.20 |
|
|
|
0.32 |
|
|
|
0.07 |
|
|
|
0.26 |
|
|
|
0.05 |
|
|
Combined ($ millions) |
|
|
10.6 |
|
|
|
16.8 |
|
|
|
(4.6 |
) |
|
|
27.4 |
|
|
|
(7.6 |
) |
Combined ($ per boe) |
|
|
1.29 |
|
|
|
2.08 |
|
|
|
(0.89 |
) |
|
|
1.68 |
|
|
|
(0.73 |
) |
|
Commodity price contracts in place at June 30, 2007 are detailed in Note 14 to the consolidated
financial statements. Additionally, the fair value of the outstanding contracts has been recorded
on the balance sheet as a net asset of $32.8 million at period end. An unrealized loss of $4.3
million resulting from the change in fair value from January 1 to June 30, 2007 has been recognized
on the statement of income (January 1 to June 30, 2006 $3.4 million loss). An unrealized gain of
$79.7 million resulting from the change in fair value from April 1 to June 30, 2007 has been
recognized on the statement of income (April 1 to June 30, 2006 $3.4 million loss).
PENGROWTH
ENERGY TRUST - 10 -
Oil and Gas Sales Contribution Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions) |
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
% of |
|
Mar 31, |
|
% of |
|
June 30, |
|
% of |
|
June 30, |
|
% of |
|
June 30, |
|
% of |
Sales Revenue |
|
2007 |
|
total |
|
2007 |
|
total |
|
2006 |
|
total |
|
2007 |
|
total |
|
2006 |
|
total |
|
Light crude oil |
|
|
177.0 |
|
|
|
40 |
|
|
|
166.2 |
|
|
|
38 |
|
|
|
134.6 |
|
|
|
47 |
|
|
|
343.2 |
|
|
|
39 |
|
|
|
255.7 |
|
|
|
45 |
|
Natural gas |
|
|
194.3 |
|
|
|
44 |
|
|
|
196.2 |
|
|
|
46 |
|
|
|
92.8 |
|
|
|
33 |
|
|
|
390.5 |
|
|
|
45 |
|
|
|
217.2 |
|
|
|
38 |
|
Natural gas liquids |
|
|
43.8 |
|
|
|
10 |
|
|
|
44.3 |
|
|
|
10 |
|
|
|
31.9 |
|
|
|
11 |
|
|
|
88.1 |
|
|
|
10 |
|
|
|
64.7 |
|
|
|
11 |
|
Heavy oil |
|
|
28.6 |
|
|
|
6 |
|
|
|
25.4 |
|
|
|
6 |
|
|
|
22.2 |
|
|
|
8 |
|
|
|
54.0 |
|
|
|
6 |
|
|
|
35.4 |
|
|
|
6 |
|
Brokered sales/sulphur |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0 |
|
|
|
1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
2.4 |
|
|
|
|
|
|
Total oil and gas sales |
|
|
444.0 |
|
|
|
|
|
|
|
432.1 |
|
|
|
|
|
|
|
283.5 |
|
|
|
|
|
|
|
876.1 |
|
|
|
|
|
|
|
575.4 |
|
|
|
|
|
|
Oil and Gas Sales Price and Volume Analysis
The following table illustrates the effect of changes in prices and volumes on the components
of oil and gas sales, including the impact of realized commodity risk management activity, for the
second quarter of 2007 compared to the first quarter of 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions) |
|
Light oil |
|
|
Natural gas |
|
|
NGL |
|
|
Heavy oil |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2007 |
|
|
166.2 |
|
|
|
196.2 |
|
|
|
44.3 |
|
|
|
25.4 |
|
|
|
|
|
|
|
432.1 |
|
Effect of change in product prices |
|
|
14.8 |
|
|
|
(4.9 |
) |
|
|
5.2 |
|
|
|
1.3 |
|
|
|
|
|
|
|
16.4 |
|
Effect of change in sales volumes |
|
|
(0.4 |
) |
|
|
5.7 |
|
|
|
(5.8 |
) |
|
|
2.1 |
|
|
|
|
|
|
|
1.6 |
|
Effect of change in realized commodity
risk management activities |
|
|
(3.5 |
) |
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.2 |
) |
Other |
|
|
(0.1 |
) |
|
|
|
|
|
|
0.1 |
|
|
|
(0.2 |
) |
|
|
0.3 |
|
|
|
0.1 |
|
|
Quarter ended June 30, 2007 |
|
|
177.0 |
|
|
|
194.3 |
|
|
|
43.8 |
|
|
|
28.6 |
|
|
|
0.3 |
|
|
|
444.0 |
|
|
The following table illustrates the effect of changes in prices and volumes on the components
of oil and gas sales, including the impact of realized commodity risk management activity, for the
first six months of 2007 compared to the same period of 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions) |
|
Light oil |
|
|
Natural gas |
|
|
NGL |
|
|
Heavy oil |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended June 30, 2006 |
|
|
255.7 |
|
|
|
217.2 |
|
|
|
64.7 |
|
|
|
35.4 |
|
|
|
2.4 |
|
|
|
575.4 |
|
Effect of change in product prices |
|
|
(18.2 |
) |
|
|
(11.1 |
) |
|
|
(9.6 |
) |
|
|
3.9 |
|
|
|
|
|
|
|
(35.0 |
) |
Effect of change in sales volumes |
|
|
82.3 |
|
|
|
172.8 |
|
|
|
33.0 |
|
|
|
14.8 |
|
|
|
|
|
|
|
302.9 |
|
Effect of change in realized commodity
risk management activities |
|
|
23.4 |
|
|
|
11.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.0 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
(2.1 |
) |
|
|
(2.2 |
) |
|
Period ended June 30, 2007 |
|
|
343.2 |
|
|
|
390.5 |
|
|
|
88.1 |
|
|
|
54.0 |
|
|
|
0.3 |
|
|
|
876.1 |
|
|
Processing and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing,
interest & other income |
|
|
5.0 |
|
|
|
4.7 |
|
|
|
4.1 |
|
|
|
9.7 |
|
|
|
7.9 |
|
$ per boe |
|
|
0.62 |
|
|
|
0.58 |
|
|
|
0.80 |
|
|
|
0.60 |
|
|
|
0.76 |
|
|
Processing, interest and other income is primarily derived from fees charged for processing and
gathering third party gas, road use and oil and water processing.
This income represents the partial recovery of operating expenses reported separately.
PENGROWTH
ENERGY TRUST - 11 -
Royalties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense |
|
|
84.0 |
|
|
|
81.6 |
|
|
|
45.3 |
|
|
|
165.6 |
|
|
|
110.6 |
|
$ per boe |
|
|
10.30 |
|
|
|
10.06 |
|
|
|
8.84 |
|
|
|
10.18 |
|
|
|
10.61 |
|
|
Royalties as a percent of sales |
|
|
18.9 |
% |
|
|
18.9 |
% |
|
|
16.0 |
% |
|
|
18.9 |
% |
|
|
19.2 |
% |
Royalties include Crown, freehold and overriding royalties as well as mineral taxes. The royalty
rate for the second quarter of 2007 has increased from the second quarter of 2006. The lower
royalty rate in the second quarter of 2006 was due to a $5 million positive adjustment to the SOEP
royalties. The royalty rate for the first half of 2007 is lower than the same period in 2006 and
should continue to decrease primarily from the CP properties average royalty rate of approximately
15 percent.
The outlook for 2007 is that royalties will average approximately 19 percent of Pengrowths sales.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
112.1 |
|
|
|
101.0 |
|
|
|
58.0 |
|
|
|
213.1 |
|
|
|
112.0 |
|
$ per boe |
|
|
13.74 |
|
|
|
12.46 |
|
|
|
11.32 |
|
|
|
13.10 |
|
|
|
10.75 |
|
|
Operating expenses increased eleven percent from the first quarter of 2007 or ten percent on a
per boe basis. Higher maintenance and a full quarter of expenses related to the CP properties
acquisition increased expenses $4 million. In addition, increased expenses were due to higher
maintenance expenses at Quirk Creek, Judy Creek and Nipisi. Expenses for the second quarter of
2007 compared to the same period of 2006 increased $54 million. Operating expenses related to the
CP properties ($25 million or $15.51 per boe), Esprit ($16 million or $12.58 per boe), and Carson
Creek ($6 million or $13.91 per boe) acquisitions accounted for 87 percent of the increase. In
addition, increased operations personnel and maintenance costs at Quirk Creek resulted in higher
expenses. Operating expenses for the first half of 2007 compared to the first half of 2006
increased 90 percent or $101 million. In addition to the CP properties, Esprit Trust, Carson Creek
and Dunvegan acquisitions ($89 million), higher maintenance at Swan Hills and Weyburn, a planned
maintenance shutdown at Quirk Creek in June 2007, partly offset by lower utility costs at
Tangleflags and Nipisi.
Operating expenses include costs incurred to earn processing and other income which are reported
separately.
Pengrowth expects total operating expenses for 2007 of approximately $410 million or $13.00 per
boe.
Net Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating expenses |
|
|
107.0 |
|
|
|
96.3 |
|
|
|
53.9 |
|
|
|
203.3 |
|
|
|
104.1 |
|
$ per boe |
|
|
13.12 |
|
|
|
11.88 |
|
|
|
10.51 |
|
|
|
12.50 |
|
|
|
9.99 |
|
|
Included in the table above are operating expenses net of the previously reported processing
and other income.
Transportation Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light oil transportation |
|
|
0.8 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
1.2 |
|
|
|
1.0 |
|
$ per bbl |
|
|
0.34 |
|
|
|
0.17 |
|
|
|
0.27 |
|
|
|
0.25 |
|
|
|
0.27 |
|
Natural gas transportation |
|
|
2.3 |
|
|
|
2.2 |
|
|
|
1.2 |
|
|
|
4.5 |
|
|
|
2.5 |
|
$ per mcf |
|
|
0.09 |
|
|
|
0.09 |
|
|
|
0.09 |
|
|
|
0.09 |
|
|
|
0.09 |
|
|
Pengrowth incurs transportation costs for its product once the product enters a feeder or main
pipeline to the title transfer point. The transportation cost is dependant upon third party rates
and distance the product travels
PENGROWTH
ENERGY TRUST - 12 -
on the pipeline prior to changing ownership or custody. Oil transportation costs increased in
the second quarter of 2007 due to additional transportation incurred related to the CP properties.
Pengrowth has the option to sell some of its natural gas directly to premium markets outside of
Alberta by incurring additional transportation costs. Pengrowth sells most of its natural gas
without incurring significant additional transportation costs. Similarly, Pengrowth has elected to
sell approximately 65 percent of its crude oil at market points beyond the wellhead but at the
first major trading point, requiring minimal transportation costs.
Amortization of Injectants for Miscible Floods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased and capitalized |
|
|
5.9 |
|
|
|
4.7 |
|
|
|
6.7 |
|
|
|
10.6 |
|
|
|
17.3 |
|
Amortization |
|
|
8.6 |
|
|
|
9.5 |
|
|
|
8.5 |
|
|
|
18.1 |
|
|
|
16.5 |
|
|
The cost of injectants (primarily natural gas and ethane) purchased for injection in miscible
flood programs is amortized equally over the period of expected future economic benefit. The cost
of injectants purchased in 2006 and 2007 is amortized over a 24 month period. As of June 30, 2007,
the balance of unamortized injectant costs was $27.8 million.
The amount purchased and capitalized was lower in the first half of 2007 compared to the same
period in 2006 due to the timing of the program. It is expected that the program will increase in
upcoming quarters and therefore higher amounts will be purchased. The value of Pengrowths
proprietary injectants is not recorded as an asset or a sale; the cost of producing these
injectants is included in operating expenses.
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, heavy oil, natural gas and natural gas liquids
production.
Pengrowth recorded an average operating netback of $29.56 per boe in the second quarter of 2007
compared to $29.87 per boe in the first quarter of 2007 and $33.94 per boe for the second quarter
of 2006. The decrease over the second quarter of 2006 is mainly due to slightly lower commodity
prices and higher operating costs and royalties. The decrease from the first half of 2006 to the
first half of 2007 is a result of lower commodity prices and higher operating costs which are
partially offset by lower royalties.
The sales price used in the calculation of operating netbacks is after realized commodity risk
management.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
Combined Netbacks ($ per boe) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price |
|
|
54.39 |
|
|
|
53.30 |
|
|
|
54.91 |
|
|
|
53.85 |
|
|
|
54.98 |
|
Other production income |
|
|
0.04 |
|
|
|
|
|
|
|
0.41 |
|
|
|
0.02 |
|
|
|
0.24 |
|
|
|
|
|
|
|
54.43 |
|
|
|
53.30 |
|
|
|
55.32 |
|
|
|
53.87 |
|
|
|
55.22 |
|
Processing, interest and other income |
|
|
0.62 |
|
|
|
0.58 |
|
|
|
0.80 |
|
|
|
0.60 |
|
|
|
0.76 |
|
Royalties |
|
|
(10.30 |
) |
|
|
(10.06 |
) |
|
|
(8.84 |
) |
|
|
(10.18 |
) |
|
|
(10.61 |
) |
Operating expenses |
|
|
(13.74 |
) |
|
|
(12.46 |
) |
|
|
(11.32 |
) |
|
|
(13.10 |
) |
|
|
(10.75 |
) |
Transportation costs |
|
|
(0.39 |
) |
|
|
(0.32 |
) |
|
|
(0.35 |
) |
|
|
(0.35 |
) |
|
|
(0.34 |
) |
Amortization of injectants |
|
|
(1.06 |
) |
|
|
(1.17 |
) |
|
|
(1.67 |
) |
|
|
(1.11 |
) |
|
|
(1.58 |
) |
|
|
|
Operating netback |
|
|
29.56 |
|
|
|
29.87 |
|
|
|
33.94 |
|
|
|
29.73 |
|
|
|
32.70 |
|
|
|
|
PENGROWTH
ENERGY TRUST - 13 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
Light Crude Netbacks ($ per bbl) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price |
|
|
71.81 |
|
|
|
67.24 |
|
|
|
72.67 |
|
|
|
69.52 |
|
|
|
67.91 |
|
Other production income |
|
|
0.08 |
|
|
|
0.04 |
|
|
|
1.07 |
|
|
|
0.06 |
|
|
|
0.56 |
|
|
|
|
|
|
|
71.89 |
|
|
|
67.28 |
|
|
|
73.74 |
|
|
|
69.58 |
|
|
|
68.47 |
|
Processing, interest and other income |
|
|
0.34 |
|
|
|
0.35 |
|
|
|
0.50 |
|
|
|
0.34 |
|
|
|
0.54 |
|
Royalties |
|
|
(11.90 |
) |
|
|
(9.88 |
) |
|
|
(11.27 |
) |
|
|
(10.89 |
) |
|
|
(9.22 |
) |
Operating expenses |
|
|
(14.77 |
) |
|
|
(13.14 |
) |
|
|
(12.17 |
) |
|
|
(13.95 |
) |
|
|
(11.53 |
) |
Transportation costs |
|
|
(0.34 |
) |
|
|
(0.17 |
) |
|
|
(0.27 |
) |
|
|
(0.25 |
) |
|
|
(0.27 |
) |
Amortization of injectants |
|
|
(3.51 |
) |
|
|
(3.84 |
) |
|
|
(4.61 |
) |
|
|
(3.67 |
) |
|
|
(4.38 |
) |
|
|
|
Operating netback |
|
|
41.71 |
|
|
|
40.60 |
|
|
|
45.92 |
|
|
|
41.16 |
|
|
|
43.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
Heavy Oil Netbacks ($ per bbl) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price |
|
|
43.52 |
|
|
|
41.54 |
|
|
|
50.07 |
|
|
|
42.57 |
|
|
|
39.52 |
|
Processing, interest and other income |
|
|
0.18 |
|
|
|
0.18 |
|
|
|
0.16 |
|
|
|
0.19 |
|
|
|
0.27 |
|
Royalties |
|
|
(5.33 |
) |
|
|
(5.23 |
) |
|
|
(4.75 |
) |
|
|
(5.29 |
) |
|
|
(3.14 |
) |
Operating expenses |
|
|
(15.37 |
) |
|
|
(13.15 |
) |
|
|
(16.03 |
) |
|
|
(14.30 |
) |
|
|
(15.09 |
) |
|
|
|
Operating netback |
|
|
23.00 |
|
|
|
23.34 |
|
|
|
29.45 |
|
|
|
23.17 |
|
|
|
21.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
Natural Gas Netbacks ($ per mcf) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price |
|
|
7.61 |
|
|
|
7.91 |
|
|
|
6.76 |
|
|
|
7.76 |
|
|
|
7.77 |
|
Other production income |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
7.61 |
|
|
|
7.91 |
|
|
|
6.77 |
|
|
|
7.76 |
|
|
|
7.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing, interest and other income |
|
|
0.16 |
|
|
|
0.15 |
|
|
|
0.23 |
|
|
|
0.16 |
|
|
|
0.20 |
|
Royalties |
|
|
(1.47 |
) |
|
|
(1.67 |
) |
|
|
(0.93 |
) |
|
|
(1.57 |
) |
|
|
(1.75 |
) |
Operating expenses |
|
|
(2.15 |
) |
|
|
(2.01 |
) |
|
|
(1.66 |
) |
|
|
(2.08 |
) |
|
|
(1.60 |
) |
Transportation costs |
|
|
(0.09 |
) |
|
|
(0.09 |
) |
|
|
(0.09 |
) |
|
|
(0.09 |
) |
|
|
(0.09 |
) |
|
|
|
Operating netback |
|
|
4.06 |
|
|
|
4.29 |
|
|
|
4.32 |
|
|
|
4.18 |
|
|
|
4.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
NGLs Netbacks ($ per bbl) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price |
|
|
56.42 |
|
|
|
49.67 |
|
|
|
58.92 |
|
|
|
52.81 |
|
|
|
58.57 |
|
Royalties |
|
|
(17.53 |
) |
|
|
(14.05 |
) |
|
|
(17.67 |
) |
|
|
(15.67 |
) |
|
|
(21.97 |
) |
Operating expenses |
|
|
(13.57 |
) |
|
|
(12.02 |
) |
|
|
(10.20 |
) |
|
|
(12.74 |
) |
|
|
(9.41 |
) |
|
|
|
Operating netback |
|
|
25.32 |
|
|
|
23.60 |
|
|
|
31.05 |
|
|
|
24.40 |
|
|
|
27.19 |
|
|
|
|
Interest
Interest expense decreased eight percent to $21.6 million in the second quarter from $23.4
million in the first quarter of 2007. Interest expense increased $15.1 million from $6.5 million
in the second quarter of 2006, reflecting a higher average debt level resulting from the CP
properties and Esprit Trust acquisitions combined with higher interest rates and standby fees in
the quarter. Approximately 20 percent of Pengrowths outstanding long term debt as at June 30,
2007 incurs interest expense payable in U.S. dollars and therefore remains subject to fluctuations
in the U.S. dollar exchange rate.
PENGROWTH
ENERGY TRUST - 14 -
General and Administrative (G&A) Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash G&A expense |
|
|
14.7 |
|
|
|
15.1 |
|
|
|
8.1 |
|
|
|
29.8 |
|
|
|
15.6 |
|
$ per boe |
|
|
1.81 |
|
|
|
1.86 |
|
|
|
1.59 |
|
|
|
1.83 |
|
|
|
1.50 |
|
Non-cash G&A expense |
|
|
1.5 |
|
|
|
1.7 |
|
|
|
0.6 |
|
|
|
3.2 |
|
|
|
1.9 |
|
$ per boe |
|
|
0.18 |
|
|
|
0.22 |
|
|
|
0.11 |
|
|
|
0.20 |
|
|
|
0.18 |
|
|
Total G&A |
|
|
16.2 |
|
|
|
16.8 |
|
|
|
8.7 |
|
|
|
33.0 |
|
|
|
17.5 |
|
Total G&A ($ per boe) |
|
|
1.99 |
|
|
|
2.08 |
|
|
|
1.70 |
|
|
|
2.03 |
|
|
|
1.68 |
|
|
The cash component of G&A for the second quarter of 2007 compared to the first quarter of 2007
decreased three percent. In comparison to the second quarter of 2006, the cash component increased
$6.6 million due to the transition services fee associated with the CP properties acquisition ($1.4
million), additional salaries and benefits resulting from the recent acquisitions ($2.3 million),
higher rent and other professional fees. Cash G&A increased $14.2 million in the first half of 2007
compared to the same period of 2006. This is due to additional salaries and benefits resulting
from the recent acquisitions ($5.3 million), the CP transition services fee ($3.0 million), legal
fees associated with ongoing litigation ($0.8 million) and professional fees associated with tax
matters ($0.9 million), higher rent and other professional fees. The CP transition contract
finished on May 31, 2007.
The non-cash component of G&A represents the compensation expense associated with Pengrowths long
term incentive programs including trust unit rights and deferred entitlement units. The increase
in the second quarter and the first half of 2007 versus the same periods in 2006 is due to the
significant increase in the number of employees due to recent acquisitions.
Management Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee |
|
|
3.0 |
|
|
|
3.2 |
|
|
|
3.4 |
|
|
|
6.2 |
|
|
|
7.6 |
|
$ per boe |
|
|
0.37 |
|
|
|
0.39 |
|
|
|
0.65 |
|
|
|
0.38 |
|
|
|
0.73 |
|
|
Commencing July 1, 2006, for the remaining three year term, the maximum fees payable to the
Manager are limited to 60 percent of the fees that would have been payable under the original
agreement or $12 million plus certain expenses, whichever is lower. The current agreement expires
on June 30, 2009 and does not contain a further right of renewal.
Taxes
In determining its taxable income, the Corporation deducts payments made to the Trust,
effectively transferring the income tax liability to unitholders thus reducing the Corporations
taxable income to nil. Under the Corporations current distribution policy, at the discretion of
the Board, funds can be withheld from distributable cash to fund future capital expenditures, repay
debt or other corporate purposes. In the event withholdings increased sufficiently, the
Corporation could become subject to taxation on a portion of its income in the future. This can be
mitigated through various options including the issuance of additional trust units, increased tax
pools from additional capital spending, modifications to the distribution policy or potential
changes to the corporate structure.
The CP properties acquisition resulted in Pengrowth recording an additional future tax liability of
$310.6 million, representing the difference between the tax basis and the fair value assigned to
the acquired assets.
Bill C-52 Budget Implementation Act 2007
On October 31, 2006, the Minister of Finance announced legislative tax proposals which modify the
taxation of certain flow-through entities including mutual fund trusts and their unitholders (the
October 31 Proposals). The October 31 Proposals apply to a specified investment flow-through
(SIFT) trust and apply a tax at the trust level on distributions of certain income from such SIFT
trust at a rate of tax comparable to the combined federal and provincial corporate tax rate. These
distributions will be treated as dividends to the trust unitholders.
PENGROWTH
ENERGY TRUST - 15 -
On March 19, 2007, the Government of Canada tabled in Parliament Bill C-52 Budget
Implementation Act 2007 which contains the October 31 Proposals. As of June 22, 2007, Bill C-52
received Royal Assent thereby legislating the October 31 Proposals.
Pengrowth believes that it is characterized as a SIFT trust and, as a result, is subject to the
October 31 Proposals. The October 31 Proposals are to apply commencing January 1, 2007 for all
SIFT trusts that begin to be publicly traded after October 31, 2006 and commencing January 1, 2011
for all SIFT trusts that were publicly traded on or before October 31, 2006. Subject to the
qualification below regarding the possible loss of the four year grandfathering period in the case
of undue expansion, it is expected that Pengrowth will not be subject to the October 31 Proposals
until January 1, 2011.
Under the previous provisions of the Tax Act, Pengrowth could generally deduct in computing its
income for a taxation year any amount of income that it distributes to unitholders in the year and,
on that basis, Pengrowth was generally not liable for any material amount of tax.
Pursuant to the October 31 Proposals, commencing January 1, 2011, (subject to the qualification
below regarding the possible loss of the four year grandfathering period in the case of undue
expansion), Pengrowth will not be able to deduct certain of its distributed income (referred to as
specified income). Pengrowth will become subject to a distribution tax on this specified income at
a special rate estimated to be 31.5 percent.
Pengrowth may lose the benefit of the four year grandfathering period if Pengrowth exceeds the
limits on the issuance of new trust units and convertible debt that constitute normal growth during
the grandfathering period (subject to certain exceptions). The normal growth limits are calculated
as a percentage of Pengrowths market capitalization of $4.8 billion on October 31, 2006 as
follows: 40 percent for the period November 1, 2006 to December 31, 2007, 20 percent for each of
2008, 2009 and 2010. Unused portions may be carried forward until December 31, 2010. It is
anticipated that the issuance of 21,100,000 trust units on December 8, 2006 for proceeds of $461
million will constitute a portion of the 40 percent normal growth limit for the period ending on
December 31, 2007.
Pursuant to the October 31 Proposals, the distribution tax will only apply in respect of
distributions of income and will not apply to returns of capital.
Future Income Taxes
Future income tax is a non-cash item relating to temporary differences between the accounting and
tax basis of Pengrowths assets and liabilities and has no immediate impact on Pengrowths cash
flows. During the second quarter of 2007, Pengrowth recorded a future tax reduction of $147.7
million. Since the October 31 Proposals have received Royal Assent, the tax legislation is
considered substantively enacted under Canadian accounting guidelines. As a result, we have
recorded a future income tax reduction of approximately $71.1 million for the quarter ending June
30, 2007, resulting from the tax basis of the assets in the Trust exceeding their book basis.
Other non-recurring items contributing to the second quarter reduction include the asset
disposition program ($46.2 million) and tax rate reduction ($10.0 million).
Depletion, Depreciation and Accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and depreciation |
|
|
163.1 |
|
|
|
162.5 |
|
|
|
67.8 |
|
|
|
325.6 |
|
|
|
138.9 |
|
$ per boe |
|
|
20.00 |
|
|
|
20.05 |
|
|
|
13.23 |
|
|
|
20.02 |
|
|
|
13.33 |
|
Accretion |
|
|
6.5 |
|
|
|
6.5 |
|
|
|
3.9 |
|
|
|
13.0 |
|
|
|
7.2 |
|
$ per boe |
|
|
0.79 |
|
|
|
0.81 |
|
|
|
0.76 |
|
|
|
0.80 |
|
|
|
0.69 |
|
|
Depletion and depreciation of property, plant and equipment is provided on the unit of
production method based on total proved reserves. The increase in 2007 rates for depletion and
depreciation and accretion is due to the inclusion of the property, plant and equipment from the CP
properties, Carson Creek and Esprit Trust acquisitions, over the applicable periods.
Pengrowths Asset Retirement Obligations (ARO) liability increased due to acquisitions and by the
amount of accretion, which is a charge to net income as a result of the passage of time.
PENGROWTH
ENERGY TRUST - 16 -
Asset Retirement Obligations
The total future ARO is estimated by management based on estimated costs to remediate, reclaim
and abandon wells and facilities having regard for Pengrowths working interest and the estimated
timing of the costs to be incurred in future periods. Pengrowth has estimated the net present
value of its total ARO to be $334.2 million as at June 30, 2007 (December 31, 2006 $255.3
million), based on a total escalated future liability of $2,052 million (December 31, 2006
$1,530 million). These costs are expected to be incurred over 50 years with the majority of the
costs incurred between 2035 and 2054. A credit adjusted risk free rate of eight percent and an
inflation rate of two percent per annum were used to calculate the net present value of the ARO.
Capital Expenditures
During the first half of 2007, Pengrowth spent $141.3 million on development and optimization
activities. The largest expenditures were at Judy Creek ($19.0 million), Tangleflags ($8.4
million), Twining ($7.4 million), Carson Creek ($6.8 million), Swan Hills ($5.6 million), Weyburn
($5.6 million), SOEP ($4.8 million) and Wildmint ($4.6 million).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
($ millions) |
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geological and geophysical |
|
|
2.3 |
|
|
|
3.5 |
|
|
|
1.1 |
|
|
|
5.8 |
|
|
|
2.3 |
|
Drilling and completions |
|
|
36.6 |
|
|
|
77.6 |
|
|
|
33.5 |
|
|
|
114.2 |
|
|
|
91.3 |
|
Plant and facilities |
|
|
2.6 |
|
|
|
9.6 |
|
|
|
7.5 |
|
|
|
12.2 |
|
|
|
20.9 |
|
Land purchases |
|
|
2.9 |
|
|
|
6.2 |
|
|
|
5.0 |
|
|
|
9.1 |
|
|
|
7.7 |
|
|
Development capital |
|
|
44.4 |
|
|
|
96.9 |
|
|
|
47.1 |
|
|
|
141.3 |
|
|
|
122.2 |
|
Other capital |
|
|
5.1 |
|
|
|
1.9 |
|
|
|
0.9 |
|
|
|
7.0 |
|
|
|
0.9 |
|
Total capital expenditures |
|
|
49.5 |
|
|
|
98.8 |
|
|
|
48.0 |
|
|
|
148.3 |
|
|
|
123.1 |
|
|
Business acquisitions |
|
|
0.6 |
|
|
|
922.7 |
|
|
|
|
|
|
|
923.3 |
|
|
|
|
|
|
Property acquisitions |
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
53.3 |
|
Proceeds on property dispositions |
|
|
(197.3 |
) |
|
|
(74.7 |
) |
|
|
(1.1 |
) |
|
|
(272.0 |
) |
|
|
(17.8 |
) |
|
Net capital expenditures and acquisitions |
|
|
(147.2 |
) |
|
|
946.8 |
|
|
|
50.4 |
|
|
|
799.6 |
|
|
|
158.6 |
|
|
Pengrowth currently anticipates capital expenditures for maintenance and development of
approximately $275 million for 2007 and $25 million for other capital including leasehold
improvements (net of tenant leasehold inducements), furniture and equipment for its new head office
building.
Acquisitions and Dispositions
Pengrowth completed asset sales for proceeds of approximately $207 million ($197 million net of
adjustments) in the second quarter of 2007 and $282 million ($272 million net of adjustments) for
the first six months of 2007. The proceeds were used to partially repay the $600 million bridge
facility. Pengrowth expects to realize additional proceeds of approximately $180 million bringing
the total for 2007 to approximately $450 million from non-core property dispositions.
Working Capital
The working capital deficiency increased by $294.5 million from $149.9 million at December 31,
2006 to $444.4 million at June 30, 2007. Most of the increased working capital deficiency is
attributable to an increase in short term bank indebtedness due to the CP properties acquisition
which closed on January 22, 2007. The proceeds of the property disposition program have been
applied to reduce the bank indebtedness in the first half of 2007. On July 13, 2007, additional
revolving term debt capacity was used to fully repay the balance of the short term bank
indebtedness which had $322 million outstanding at June 30, 2007.
Pengrowth frequently operates with a working capital deficiency as a result of the fact that
distributions related to two production months of operating income are payable to unitholders at
the end of any month, but only one month of production is still receivable. For example, at the
end of May, distributions related to April and May production months were payable on June 15 and
July 15 respectively. Aprils production revenue, received on May 25, is temporarily applied
against Pengrowths term credit facility until the distribution payment on June 15.
PENGROWTH
ENERGY TRUST - 17 -
Financial Resources and Liquidity
Pengrowths capital structure is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As at |
|
|
As at |
|
|
|
June 30 |
|
|
December 31 |
|
|
June 30 |
|
($ thousands) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term credit facilities |
|
|
720,000 |
|
|
|
257,000 |
|
|
|
162,000 |
|
Senior unsecured notes |
|
|
318,328 |
|
|
|
347,200 |
|
|
|
326,310 |
|
Working capital deficit |
|
|
117,201 |
|
|
|
140,563 |
|
|
|
78,347 |
|
Note payable |
|
|
|
|
|
|
|
|
|
|
20,000 |
|
Bank indebtedness |
|
|
327,193 |
|
|
|
9,374 |
|
|
|
(1,197 |
) |
|
Net debt excluding convertible debentures |
|
|
1,482,722 |
|
|
|
754,137 |
|
|
|
585,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures |
|
|
75,079 |
|
|
|
75,127 |
|
|
|
|
|
|
Net debt including convertible debentures |
|
|
1,557,801 |
|
|
|
829,264 |
|
|
|
585,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust unitholders equity |
|
|
2,913,152 |
|
|
|
3,049,677 |
|
|
|
1,430,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt excluding convertible debentures as a percentage of total book capitalization |
|
|
33.7 |
% |
|
|
19.8 |
% |
|
|
29.0 |
% |
Net debt including convertible debentures as a percentage of total book capitalization |
|
|
34.8 |
% |
|
|
21.4 |
% |
|
|
29.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months trailing cash flow from operating activities |
|
|
657,597 |
|
|
|
554,368 |
|
|
|
638,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt excluding convertible debentures to cash flow from operating activities |
|
|
2.3 |
|
|
|
1.4 |
|
|
|
0.9 |
|
Net debt including convertible debentures to cash flow from operating activities |
|
|
2.4 |
|
|
|
1.5 |
|
|
|
0.9 |
|
|
The $729 million increase in net debt excluding convertible debentures from December 31, 2006
is attributable to the funds borrowed for the CP properties acquisition and Pengrowths capital
program. The net debt to cash flow is higher in the first half of 2007 compared to the same period
in 2006 as a result of the increased debt levels associated with the CP properties, Esprit Trust
and Carson Creek acquisitions and 12 months trailing cash flow from operating activities not
including a full 12 month contribution from the acquired assets.
Pengrowth funds its capital expenditures through a combination of cash withholdings, available
credit from its bank credit facilities and proceeds from exercise of trust unit rights and the
distribution reinvestment plan. The credit facilities and other sources of cash are expected to be
sufficient to meet Pengrowths near term capital requirements and provide the flexibility to pursue
profitable growth opportunities. A significant decline in oil and natural gas prices could impact
our access to bank credit facilities and our ability to fund operations, maintain distributions and
pursue profitable growth opportunities.
On June 15, 2007, Pengrowth increased its term credit facility and extended the maturity date to
June 16, 2010. At June 30, 2007, Pengrowth maintained a $1.2 billion term credit facility and a
$35 million operating line of credit. These facilities were reduced by drawings of $720 million and
by $17 million in letters of credit outstanding at quarter end. Pengrowth remains well positioned
to fund its 2007 development program and to take advantage of acquisition opportunities as they
arise. At June 30, 2007, Pengrowth had approximately $489 million available to draw from its
credit facilities. At June 30, 2007, Pengrowth also maintained a $600 million bridge facility
which was drawn to fund the CP properties acquisition. The bridge facility was drawn by $322
million at June 30, 2007.
On July 13, 2007, with proceeds from Pengrowths increased term credit facility, Pengrowth
fully repaid the remaining $322 million outstanding on the bridge facility that was due January 22,
2008. On July 26, 2007, Pengrowth closed a U.S. $400 million offering of notes issued on a private
placement basis in the United States. The private placement consists of 6.35 percent notes due in
2017. The notes are unsecured and rank equally with Pengrowths bank facilities and existing term
notes. As of July 31, 2007, Pengrowth had unused credit capacity of approximately $580 million.
Pengrowth does not have any off balance sheet financing arrangements.
Pengrowths U.S. $200 million senior unsecured notes, pound sterling denominated £50 million senior
unsecured notes and the credit facilities have certain financial covenants which may restrict the
total amount of Pengrowths borrowings. The calculation for each ratio is based on specific
definitions, is not in accordance with GAAP and cannot be readily replicated by referring to
Pengrowths financial statements. The financial covenants are different between the credit
facilities and the senior unsecured notes and some of the covenants are summarized below:
PENGROWTH
ENERGY TRUST - 18 -
|
1. |
|
Total senior debt should not be greater than three times Earnings Before Income Taxes Depreciation and Amortization (EBITDA) for the last four fiscal quarters |
|
|
2. |
|
Total debt should not be greater than 3.5 times EBITDA for the last four fiscal quarters |
|
|
3. |
|
Total senior debt should be less than 50 percent of total book capitalization |
|
|
4. |
|
EBITDA should not be less than four times interest expense |
In the event that Pengrowth enters into a significant acquisition, certain credit facility
financial covenants are relaxed for two fiscal quarters after the close of the acquisition.
Pengrowth may also make certain pro forma adjustments in calculating the financial covenant ratios.
The actual loan documents are filed on SEDAR as Other Material Contracts. As at June 30, 2007,
Pengrowth was in compliance with all its financial covenants. Failing a financial covenant may
result in one or more of Pengrowths loans being in default. In certain circumstances, being in
default of one loan may result in other loans to also be in default. In the event that Pengrowth
was not in compliance with any one of the financial covenants in its credit facility or senior
unsecured notes, Pengrowth would be in default of one or more of its loans and would have to repay
the debt, refinance the debt or negotiate new terms with the debt holders and may have to suspend
distributions to unitholders.
As a result of the October 2, 2006 business combination with Esprit Trust, Pengrowth assumed all of
Esprit Trusts 6.5 percent convertible unsecured subordinated debentures (the debentures). The
debentures were originally issued on July 28, 2005 with interest paid semi-annually in arrears on
June 30 and December 31 of each year. Each $1,000 principal amount of debentures is convertible
at the option of the holder at any time into fully paid Pengrowth trust units at a conversion price
of $25.54 per trust unit. The debentures mature on December 31, 2010. After December 31, 2008,
Pengrowth may elect to redeem all or a portion of the outstanding Debentures at a price of $1,050
per debenture or $1,025 per debenture after December 31, 2009. As at June 30, 2007, the principal
amount of debentures outstanding was $74.7 million.
Distributable Cash and Distributions
There is no standardized measure of distributable cash and therefore distributable cash, as
reported by Pengrowth, may not be comparable to similar measures presented by other trusts. The
following table provides a reconciliation of distributable cash and payout ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands, except per trust unit amounts) |
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2007 |
|
|
Mar 31, 2007 |
|
|
June 30, 2006 |
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
Cash flows from operating activities (1) |
|
|
249,960 |
|
|
|
136,429 |
|
|
|
126,800 |
|
|
|
386,389 |
|
|
|
283,160 |
|
Change in non-cash operating working capital (1) |
|
|
(51,428 |
) |
|
|
64,330 |
|
|
|
25,745 |
|
|
|
12,902 |
|
|
|
10,645 |
|
|
Funds generated from operations |
|
|
198,532 |
|
|
|
200,759 |
|
|
|
152,545 |
|
|
|
399,291 |
|
|
|
293,805 |
|
Change in remediation trust funds |
|
|
(1,598 |
) |
|
|
(1,365 |
) |
|
|
(279 |
) |
|
|
(2,963 |
) |
|
|
(670 |
) |
Distributable cash (2) |
|
|
196,934 |
|
|
|
199,394 |
|
|
|
152,266 |
|
|
|
396,328 |
|
|
|
293,135 |
|
|
Capital expenditures |
|
|
(49,467 |
) |
|
|
(98,785 |
) |
|
|
(47,999 |
) |
|
|
(148,252 |
) |
|
|
(123,060 |
) |
Distributable cash after capital |
|
|
147,467 |
|
|
|
100,609 |
|
|
|
104,267 |
|
|
|
248,076 |
|
|
|
170,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid or declared |
|
|
184,327 |
|
|
|
183,534 |
|
|
|
120,597 |
|
|
|
367,861 |
|
|
|
240,899 |
|
Distributable cash per trust unit |
|
|
0.80 |
|
|
|
0.82 |
|
|
|
0.95 |
|
|
|
1.62 |
|
|
|
1.83 |
|
Distributions paid or declared per trust unit |
|
|
0.75 |
|
|
|
0.75 |
|
|
|
0.75 |
|
|
|
1.50 |
|
|
|
1.50 |
|
Payout ratio (3) |
|
|
94 |
% |
|
|
92 |
% |
|
|
79 |
% |
|
|
93 |
% |
|
|
82 |
% |
Payout ratio after capital (4) |
|
|
125 |
% |
|
|
182 |
% |
|
|
116 |
% |
|
|
148 |
% |
|
|
142 |
% |
|
|
|
(1) |
|
Prior year restated, see Note 1 to financial statements. |
|
(2) |
|
Prior year restated to conform to current presentation. |
|
(3) |
|
Payout ratio is calculated as distributions paid or declared divided by distributable cash. |
|
(4) |
|
Payout ratio after capital is calculated as distributions paid or declared divided by distributable cash after capital. |
Pengrowth does not deduct capital expenditures when calculating distributable cash. As a result of
the depleting nature of Pengrowths oil and gas assets, some level of capital expenditures is
required to minimize production declines while other capital is required to optimize facilities.
Pengrowths 2007 capital expenditures are projected to be insufficient to fully replace production.
There can be no certainty that Pengrowth will be able to maintain productive capacity in future
periods. While Pengrowth does deduct actual expenditures on ARO and contributions to remediation
trust funds, no deduction is made for future remediation commitments or accretion expense charged
to the ARO reported on the balance sheet as those obligations will be funded out of cash flow
generated in the future. The distributable cash calculation makes no provision for the repayment of
short or long term debt. Pengrowths calculation of distributable cash also adds back changes
PENGROWTH
ENERGY TRUST - 19 -
in operating working capital. In times of commodity price volatility, including working capital
changes results in cash flows from operations which may be inconsistent with actual results.
Pengrowth calculates and presents distributable cash to provide investors with a measure of the
changes in cash available to be distributed to unitholders. As a result of the volatility in
commodity prices and changes in production levels, Pengrowth may not report the same amount of
distributable cash in each period and may temporarily borrow to fund distributions recommended by
the Board.
Distributable cash is derived from producing and selling oil, natural gas and related products. As
such, distributable cash is highly dependent on commodity prices. Pengrowth entered into forward
commodity contracts to fix the commodity price and mitigate price volatility on a portion of its
2007 and 2008 sales volumes. Details of commodity contracts are contained in Note 14 to the
financial statements.
The Board of Directors and Management regularly monitor forecast distributable cash and payout
ratio. When reviewing the level of distributions, the Board considers a number of factors,
including expectations of future commodity prices, capital expenditure requirements, and the
availability of debt and equity capital. Pursuant to the Royalty Indenture, the Board can
establish a reserve for certain items including up to 20 percent of the Corporations gross revenue
to fund various costs including future capital expenditures, royalty income in any future period
and future abandonment costs.
Cash distributions are generally paid to unitholders on or about the 15th day of the
second month following the month of production. Pengrowth paid $0.75 per trust unit as cash
distributions during the second quarter of 2007.
The following is a summary of recent monthly distributions and future key dates:
|
|
|
|
|
|
|
|
|
Ex-Distribution |
|
Record Date |
|
Distribution |
|
Distribution Amount |
|
US $ |
Date * |
|
|
|
Payment Date |
|
per Trust Unit |
|
Amount** |
|
December 27, 2006 |
|
December 29, 2006 |
|
January 15, 2007 |
|
$0.25 |
|
$0.21 |
January 30, 2007 |
|
February 1, 2007 |
|
February 15, 2007 |
|
$0.25 |
|
$0.21 |
February 27, 2007 |
|
March 1, 2007 |
|
March 15, 2007 |
|
$0.25 |
|
$0.21 |
March 28, 2007 |
|
March 30, 2007 |
|
April 15, 2007 |
|
$0.25 |
|
$0.22 |
April 27, 2007 |
|
May 1, 2007 |
|
May 15, 2007 |
|
$0.25 |
|
$0.23 |
May 30, 2007 |
|
June 1, 2007 |
|
June 15, 2007 |
|
$0.25 |
|
$0.24 |
June 27, 2007 |
|
June 29, 2007 |
|
July 15, 2007 |
|
$0.25 |
|
$0.24 |
July 27, 2007 |
|
July 31, 2007 |
|
August 15, 2007 |
|
$0.25 |
|
$0.24 |
August 29, 2007 |
|
August 31, 2007 |
|
September 15, 2007 |
|
|
|
|
September 26, 2007 |
|
September 28, 2007 |
|
October 15, 2007 |
|
|
|
|
October 30, 2007 |
|
November 1, 2007 |
|
November 15, 2007 |
|
|
|
|
November 29, 2007 |
|
December 3, 2007 |
|
December 15, 2007 |
|
|
|
|
|
|
|
* |
|
To benefit from the monthly cash distribution, unitholders must purchase or hold trust units prior to the ex-distribution date. |
** |
|
Before applicable withholding taxes. |
Taxability of Distributions
At this time, Pengrowth anticipates that approximately 90 to 95 percent of 2007 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.
The following discussion relates to the taxation of Canadian unitholders only. Cash distributions
are comprised of a return of capital portion which is tax deferred and return on capital portion
which is taxable income. The return of capital portion reduces the cost base of a unitholders
trust units for purposes of calculating a capital gain or loss upon ultimate disposition. For
detailed tax information relating to non-residents, please refer to our website www.pengrowth.com.
PENGROWTH ENERGY TRUST -20-
Summary of Quarterly Results
The following table is a summary of quarterly results for 2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
Q1 |
|
|
Q2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales ($000s) |
|
|
432,108 |
|
|
|
443,977 |
|
|
|
|
|
|
|
|
|
Net income/(loss) ($000s) |
|
|
(69,834 |
) |
|
|
271,659 |
|
|
|
|
|
|
|
|
|
Net income/(loss) per trust unit ($) |
|
|
(0.29 |
) |
|
|
1.11 |
|
|
|
|
|
|
|
|
|
Net income/(loss) per trust unit diluted ($) |
|
|
(0.29 |
) |
|
|
1.10 |
|
|
|
|
|
|
|
|
|
Distributable cash ($000s) |
|
|
199,394 |
|
|
|
196,934 |
|
|
|
|
|
|
|
|
|
Actual distributions paid or declared per trust unit ($) |
|
|
0.75 |
|
|
|
0.75 |
|
|
|
|
|
|
|
|
|
Daily production (boe) |
|
|
90,068 |
|
|
|
89,633 |
|
|
|
|
|
|
|
|
|
Total production (mboe) |
|
|
8,106 |
|
|
|
8,157 |
|
|
|
|
|
|
|
|
|
Average realized price ($ per boe) |
|
|
53.30 |
|
|
|
54.39 |
|
|
|
|
|
|
|
|
|
Operating netback ($ per boe) |
|
|
29.87 |
|
|
|
29.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
Oil and gas sales ($000s) |
|
|
291,896 |
|
|
|
283,532 |
|
|
|
287,757 |
|
|
|
350,908 |
|
Net income ($000s) |
|
|
66,335 |
|
|
|
110,116 |
|
|
|
82,542 |
|
|
|
3,310 |
|
Net income per trust unit ($) |
|
|
0.41 |
|
|
|
0.69 |
|
|
|
0.51 |
|
|
|
0.01 |
|
Net income per trust unit diluted ($) |
|
|
0.41 |
|
|
|
0.68 |
|
|
|
0.51 |
|
|
|
0.01 |
|
Distributable cash ($000s) |
|
|
140,869 |
|
|
|
152,266 |
|
|
|
142,344 |
|
|
|
140,405 |
|
Actual distributions paid or declared per trust unit ($) |
|
|
0.75 |
|
|
|
0.75 |
|
|
|
0.75 |
|
|
|
0.75 |
|
Daily production (boe) |
|
|
58,845 |
|
|
|
56,325 |
|
|
|
58,344 |
|
|
|
77,614 |
|
Total production (mboe) |
|
|
5,296 |
|
|
|
5,126 |
|
|
|
5,368 |
|
|
|
7,141 |
|
Average realized price ($ per boe) |
|
|
55.04 |
|
|
|
54.91 |
|
|
|
53.67 |
|
|
|
49.24 |
|
Operating netback ($ per boe) |
|
|
31.44 |
|
|
|
33.94 |
|
|
|
30.82 |
|
|
|
24.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
Oil and gas sales ($000s) |
|
|
239,913 |
|
|
|
253,189 |
|
|
|
304,484 |
|
|
|
353,923 |
|
Net income ($000s) |
|
|
56,314 |
|
|
|
53,106 |
|
|
|
100,243 |
|
|
|
116,663 |
|
Net income per trust unit ($) |
|
|
0.37 |
|
|
|
0.34 |
|
|
|
0.63 |
|
|
|
0.73 |
|
Net income per trust unit diluted ($) |
|
|
0.37 |
|
|
|
0.34 |
|
|
|
0.63 |
|
|
|
0.73 |
|
Distributable cash ($000s) |
|
|
126,144 |
|
|
|
134,779 |
|
|
|
157,915 |
|
|
|
189,379 |
|
Actual distributions paid or declared per trust unit ($) |
|
|
0.69 |
|
|
|
0.69 |
|
|
|
0.69 |
|
|
|
0.75 |
|
Daily production (boe) |
|
|
59,082 |
|
|
|
57,988 |
|
|
|
58,894 |
|
|
|
61,442 |
|
Total production (mboe) |
|
|
5,317 |
|
|
|
5,277 |
|
|
|
5,418 |
|
|
|
5,653 |
|
Average realized price ($ per boe) |
|
|
44.97 |
|
|
|
47.79 |
|
|
|
56.07 |
|
|
|
62.55 |
|
Operating netback ($ per boe) |
|
|
27.70 |
|
|
|
29.26 |
|
|
|
33.94 |
|
|
|
38.81 |
|
Production has increased over the quarters as a result of the acquisitions completed by
Pengrowth and internal development activities over these periods. Oil and gas sales have increased
along with the increase in production. Changes in commodity prices have also impacted oil and gas
sales but have been partially muted by risk management activity. Net income increased in 2005
along with the higher oil and gas sales. Net income in 2006 and 2007 has been impacted by non-cash
charges, in particular depletion, depreciation and accretion and future taxes. Distributable cash
has not been impacted by these charges and the level of distributions has been stable over these
periods.
Business Risks
The amount of distributable cash available to unitholders and the value of Pengrowth trust units
are subject to numerous risk factors. As the trust units allow investors to participate in the net
cash flow from Pengrowths portfolio of producing oil and natural gas properties, the principal
risk factors that are associated with the oil and gas business include, but are not limited to, the
following influences:
The prices of Pengrowths products (crude oil, natural gas, and NGLs) fluctuate due to many
factors including local and global market supply and demand, weather patterns, pipeline
transportation and political stability.
The marketability of our production depends in part upon the availability, proximity and capacity
of gathering systems, pipelines and processing facilities. Operational or economic factors may
result in the inability to deliver our products to market.
PENGROWTH
ENERGY TRUST - 21 -
Geological and operational risks affect the quantity and quality of reserves and the costs of
recovering those reserves. Our actual results will vary from our reserve estimates and those
variations could be material.
Government royalties, income taxes, commodity taxes and other taxes, levies and fees have a
significant economic impact on Pengrowths financial results. Changes to federal and provincial
legislation including implementation of the October 31 Proposals governing such royalties, taxes
and fees could have a material impact on Pengrowths financial results and the value of Pengrowth
trust units.
Oil and gas operations carry the risk of damaging the local environment in the event of equipment
or operational failure. The cost to remediate any environmental damage could be significant.
Environmental laws and regulatory initiatives impact Pengrowth financially and operationally. We
may incur substantial capital and operating expenses to comply with increasingly complex laws and
regulations covering the protection of the environment and human health and safety. In particular,
we may be required to incur significant costs to comply with future regulations to reduce
greenhouse gas and other emissions.
Pengrowths oil and gas reserves will be depleted over time and our level of distributable cash
and the value of our trust units could be reduced if reserves and production are not replaced. The
ability to replace production depends on Pengrowths success in developing existing reserves,
acquiring new reserves and financing this development and acquisition activity within the context
of the capital markets. Additional uncertainty with new legislation may limit access to capital or
increase the cost of raising capital.
Increased competition for properties will drive the cost of acquisitions up and expected returns
from the properties down.
A significant portion of our properties are operated by third parties. If these operators fail to
perform their duties properly, or become insolvent, we may experience interruptions in production
and revenues from these properties or incur additional liabilities and expenses as a result of the
default of these third party operators.
Increased activity within the oil and gas sector has increased the cost of goods and services and
makes it more difficult to hire and retain professional staff.
Changing interest rates influence borrowing costs and the availability of capital.
Investors interest in the oil and gas sector may change over time which would affect the
availability of capital and the value of Pengrowth trust units.
Inflation may result in escalating costs which could impact unitholder distributions and the
value of Pengrowth trust units.
Canadian / U.S. exchange rates influence revenues and, to a lesser extent, operating and capital
costs.
The value of Pengrowth trust units is impacted directly by the related tax treatment of the trust
units and the trust unit distributions, and indirectly by the tax treatment of alternative equity
investments. Changes in Canadian or U.S. tax legislation could adversely affect the value of our
trust units.
These factors should not be considered to be exhaustive. Additional risks are outlined in the AIF
of the Trust available on SEDAR at www.sedar.com.
Subsequent Events
On July 26, 2007, Pengrowth closed a U.S. $400 million offering of notes issued on a private
placement basis in the United States. The private placement consists of 6.35 percent notes due in
2017. The notes are unsecured and rank equally with Pengrowths bank facilities and existing term
notes. Pengrowth has eliminated the $600 million bridge facility and maintained its $1.2 billion
term credit facility, all other term notes and convertible debentures.
PENGROWTH
ENERGY TRUST - 22 -
Outlook
At this time, Pengrowth has increased the average 2007 production guidance to between 85,000 to
87,500 boe per day from our existing properties. This estimate takes into account the expected
divestiture during 2007 of approximately 8,900 boe per day production at the time of sale. The
above estimate excludes the impact from other future acquisitions or divestitures.
Pengrowths total operating expenses for 2007 are expected to increase when compared to 2006 and
are anticipated to total approximately $410 million or $13.00 per boe. On a per boe basis, G&A is
anticipated to be approximately $2.20, which includes management fees of approximately $0.40 per
boe. This increased guidance is largely due to the costs associated with the transition services
agreement for the CP properties acquisition.
Pengrowth currently anticipates capital expenditures for maintenance and development opportunities
at existing properties of approximately $275 million for 2007. Two thirds of the 2007 program is
expected to be spent on the drilling program and the remainder of the budget is expected to be
spent on facility maintenance and optimization and land and seismic purchases. In addition to the
2007 development capital program, Pengrowth expects to invest $25 million for leasehold
improvements (net of tenant leasehold inducements), furniture and equipment for its new head office
building.
Recent Accounting Pronouncements
Effective January 1, 2007, Pengrowth prospectively adopted new Canadian accounting standards
relating to financial instruments. The impacts of adopting the new standards are reflected in
Pengrowths current quarter results and prior year comparative financial statements have not been
restated. While the new rules resulted in changes to how Pengrowth accounts for its financial
instruments and comparability with prior periods, there were no material impacts on Pengrowths
current quarter financial results. For a description of the new accounting rules and the impact on
Pengrowths financial statements of adopting such rules, including the impact on Pengrowths
deferred financing charges, long term debt and deferred foreign exchange gains, see Note 1 to the
unaudited interim financial statements for the quarter ending June 30, 2007.
New Canadian accounting recommendations for capital disclosures have been issued which will require
additional disclosure of both qualitative and quantitative information about objectives, policies
and processes for managing capital. These recommendations are effective beginning January 1, 2008.
New Canadian accounting recommendations for additional disclosures about financial instruments have
been issued which will require disclosure and presentation of financial instruments about the
nature and extent of risks arising from financial instruments to which Pengrowth is exposed. These
recommendations are effective beginning January 1, 2008.
Subsequent to June 30, 2007, new Canadian interpretive guidance has been released for the
preparation and disclosure of distributable cash, income trusts and other indirect offerings. The
guidance is effective for the third quarter of 2007.
Disclosure Controls and Procedures
As a Canadian reporting issuer with securities listed on both the TSX and the NYSE, Pengrowth
is required to comply with Multilateral Instrument 52-109 Certification of Disclosure in Issuers
Annual and Interim Filings, as well as the Sarbanes Oxley Act (SOX) enacted in the United States.
Both the Canadian and U.S. certification rules include similar requirements where both the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO) must assess and certify as to the
effectiveness of the disclosure controls and procedures as defined in Canada by Multilateral
Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings and in the
United States by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended.
The CEO, James S. Kinnear, and the CFO, Christopher Webster, evaluated the effectiveness of
Pengrowths disclosure controls and procedures for the period ending June 30, 2007. This evaluation
considered the functions performed by its Disclosure Committee, the review and oversight of all
executive officers and the board, as well as the process and systems in place for filing regulatory
and public information. Pengrowths established review process and disclosure controls are designed
to ensure that all required information, reports and filings required under Canadian securities
legislation and United States securities laws are properly submitted and recorded in accordance
with those requirements.
PENGROWTH
ENERGY TRUST - 23 -
Based on that evaluation, the CEO and CFO concluded that the design and operation of our
disclosure controls and procedures were effective as at June 30, 2007 to ensure that information
required to be disclosed by us in reports that we file under Canadian and U.S. securities laws is
gathered, recorded, processed, summarized and reported within the time periods specified under
Canadian and U.S. securities laws and is accumulated and communicated to the management of
Pengrowth Corporation,
including the CEO and CFO, to allow timely decisions regarding required disclosure as required
under Canadian and U.S. securities laws.
During the period ended June 30, 2007, no change occurred to Pengrowths internal control over
financial reporting that has materially affected or is reasonably likely to materially affect,
Pengrowths internal control over financial reporting. Managements evaluation specifically
excluded the controls and procedures of the recently acquired CP properties. The acquisition and
the accounting of the CP properties acquisition were included in our evaluation.
CONFERENCE CALL AND CONTACT INFORMATION
Pengrowth will hold a conference call beginning at 9:00 A.M. Mountain Time on Thursday,
August 2, 2007 during which management will review Pengrowths 2007 second quarter financial and
operating results and respond to inquiries from the investment community. To participate callers
may dial (866) 249-1964 or Toronto local (416) 644-3428. To ensure timely participation in the
teleconference, callers are encouraged to dial in 10 to 15 minutes prior to commencement of the
call to register. A live audio webcast will be accessible through the Presentations and Webcasts
section of Pengrowths website at www.pengrowth.com. The webcast will be archived on the Pengrowth
website. A telephone replay will be available through to midnight Eastern Time on Thursday, August
16, 2007 by dialing (877) 289-8525 or Toronto local (416) 640-1917 and entering passcode number
21241656#. For further information about Pengrowth, please visit our website www.pengrowth.com or
contact:
Investor Relations, E-mail: investorrelations@pengrowth.com
Telephone: (403) 233-0224 Toll Free: 1-888-744-1111 Facsimile: (403) 294-0051
PENGROWTH
ENERGY TRUST - 24 -
Operations Review
REVIEW OF DEVELOPMENT ACTIVITIES
(All volumes stated below are net to Pengrowth unless otherwise stated)
In the second quarter of 2007, Pengrowths daily production averaged 89,633 boe per day and
development capital totaled approximately $44.4 million with approximately 82 percent directed
towards drilling and completions. Pengrowth participated in drilling 34 gross wells (15.3 net
wells) with a success rate of 94 percent. In addition, Pengrowth participated in drilling three
injection and one water disposal well (0.9 net).
The relatively flat quarter over quarter production levels resulted from production additions
associated with the Carson Creek, Esprit Trust and CP properties acquisitions as well as ongoing
development activities primarily in the Northern business unit which includes new wells at Dunvegan
and in the Southern business unit which includes new wells at Weyburn. These additions were offset
by reduced activity during the quarter due to an early and extended spring break-up, completion of
the second phase of our disposition program and natural production declines.
During the quarter, Pengrowth added to its land position by acquiring 12,382 acres at Crown land
sales in various areas to supplement our operations and provide opportunities for future drilling.
Northern:
Production in the second quarter of 2007 from Pengrowths Northern business unit remained
relatively stable quarter over quarter and averaged 12,699 boe per day with 48 percent of
production comprised of natural gas and 52 percent crude oil and natural gas liquids (NGLs).
Natural declines were offset by three months of production from new wells drilled at Elm, Weasel
and Karr during the first quarter of 2007.
After an active first quarter drilling program, particularly in winter-access only areas, Pengrowth
did not drill any new operated wells during the second quarter. However, two partner-operated
horizontal wells were drilled at Cutbank (27.5 percent working interest). One well was production
tested at Cutbank yielding 6.7 mmcf per day (1.84 mmcf per day net). Capital development in the
quarter totaled $9.7 million with 66 percent targeted towards drilling related activities including
completions and tie-ins with the majority spent at Wildmint, Tupper and Elm. In addition,
approximately 34 percent was targeted towards maintenance capital with projects being completed at
Weasel and Dunvegan.
Results of note include the start-up of the new well at Karr on May 12, 2007 with an initial
production rate of 1 mmcf per day and a current rate of 1.4 mmcf per day and the start up of the
new well at Weasel on June 7, 2007 with an initial production rate of 700 mcf per day.
Central:
The Central business unit averaged approximately 26,339 boe per day in the second quarter of
2007 with 67 percent of production comprised of crude oil and NGLs and 33 percent comprised of
natural gas. Production volumes were down approximately five percent when compared to first
quarter of 2007. This reduction is partially due to turnaround activities at Judy Creek, a
production shut-in at Deer Mountain and unanticipated downtime during the quarter. However, on a
year-to-date basis, production levels in the Central business unit are exceeding 2007 budget
expectations.
During the second quarter, capital development totaled approximately $18.5 million with
approximately two thirds of capital spent on drilling related activities including completions and
tie-ins with the remainder targeted mainly towards maintenance capital and seismic activity. There
was no operated drilling activity during the second quarter. At the partner-operated Swan Hills
Unit No. 1 (22.35 percent working interest), eight wells were drilled consisting of four oil wells,
three injection wells and one water disposal well. The four oil wells had in aggregate production
test rates of 500 boe per day (112 boe per day net). In addition,
Pengrowth agreed to participate in a
CO2 pilot at the
partner-operated South Swan Hills Unit (8.8 percent working interest).
Other key activities during the quarter included the commencement of four new hydrocarbon
miscible flood patterns at Judy Creek. One pattern began solvent injection during the quarter with
the remaining three expected to begin solvent injection during the third quarter with pattern
response expected in the latter half of the year.
CO2
injection continues at the Judy Creek CO2 pilot
project that began in February of 2007 and is expected to continue for 18 months with target injection rates of approximately 200 tonnes per
day.
PENGROWTH
ENERGY TRUST - 25 -
At Carson Creek development activities added more than 100 boe per day through a combination of
stimulations, reactivations and other optimization activities The 16-7-61-12 W5 well (working
interest 23.8 percent) came onstream in the second quarter and has averaged 1.2 mmcf per day (0.29
mmcf per day net). The production is very liquids rich yielding 90 bbls per mmcf of condensate and
natural gas liquids.
Pengrowth obtained approval for one drilling location during the quarter and has initiated scoping
in the gas unit to perform a field optimization study which should result in additional
site-specific compression and well recompletions. In addition, interpretation began on the Carson
Creek 3D seismic survey which was acquired in the first quarter of the year. The data will be used
to generate infill drilling locations over the coming quarters.
Southern:
Production in the second quarter of 2007 averaged approximately 27,602 boe per day in the
Southern business unit with 38 percent comprised of crude oil and NGLS and 62 percent natural gas.
Year to date production is tracking slightly ahead of budgeted production levels and has increased
by approximately five percent when compared to first quarter 2007 levels.
Development capital for the second quarter of 2007 totaled approximately $9.1 million with the
large majority targeted towards drilling activities and the balance on workover and maintenance
costs. There was a high level of activity during the quarter with 27 gross (12.9 net) wells
drilled. All but one well was successful which resulted in a 96.3 percent success rate.
The drilling program included 7 gross (5.3 net) gas wells drilled at Twining, Berry, Three Hills,
Sounding Lake and two coalbed methane (CBM) gas wells at Ghost Pine and Wimborne. Three of the gas
wells have been initially tested at a combined rate of approximately 3.7 mmcf per day (3.4 mmcf per
day net) and extended flow tests are underway to confirm these encouraging initial rates.
At Parkdale/Claresholm, the last three commitment wells (2.3 net) of a four well farm-in have been
drilled resulting in two oil wells (1.3 net) which had initial test rates of 355 boe per day (125
boe per day net). One well was drilled and abandoned. The first well of the farm-in program was
drilled in the first quarter and was also tested during this quarter and resulted in a gas well
with an initial rate of 450 mcf per day (150 mcf per day net).
There were 17 gross (5.3 net) oil wells drilled at Weyburn, Nevis, Richdale and Twining during the
second quarter and are expected to be tied in during the third quarter. One of the Twining wells
had a significant uphole sand that will be tested in the third quarter and, depending on the
results, may lead to additional opportunities in the area.
Tie-ins and completions were delayed due to this years extended spring break-up compounded by
extremely wet field conditions. However, during the quarter, eight wells were placed on production
at a number of producing properties including Aden, Manyberries, Mikwan, Three Hills and Sounding
Lake. Initial production rates of 405 bbls per day were recorded for three oil wells (100 percent
working interest)
and five gas wells were brought on with combined gross production of 2.5 mmcf per day (combined net
production of 1.9 mmcf).
Olds:
Production at the Olds business unit averaged 10,569 boe per day during the second quarter of
2007 comprised of 96 percent natural gas and associated NGLs and 4 percent crude oil. Production
levels decreased slightly by two percent in the second quarter due in part to scheduled plant
turnarounds at non-operated processing facilities in both Quirk Creek and High River.
Capital spending in the quarter was targeted towards drilling related activities, maintenance and
workover costs. There were no significant capital expenditures during the second quarter of 2007.
There was no operated drilling activity in the second quarter; however, industry partners drilled
two wells where Pengrowth retains a royalty. Both wells are expected to come onstream during the
third quarter this year.
Key activities during the quarter included: the completion of sulphur solvent treatments on three
sour Wabamun wells at Olds which resulted in total production gains of approximately 300 mcf per
day; one non-operated Ellerslie well came on production at an initial rate of 192 mcf per day net
to Pengrowth; and the conclusion of facility upgrades at the new 2006 Quirk Creek well resulting in
an overall gain of approximately 1.9 mmcf per day net to Pengrowth.
PENGROWTH ENERGY TRUST - 26 -
Heavy:
In the second quarter of 2007, production in the Heavy Oil business unit averaged 5,214 boe per
day with 78 percent of production comprised of heavy oil and 22 percent comprised of natural gas.
Second quarter production levels decreased approximately ten percent compared to first quarter 2007
due mainly to planned dispositions that closed during the quarter and delay in well repairs due to
the extended spring break-up.
During the quarter, capital development totaled approximately $6.7 million with the majority
targeted towards drilling and related activities with the balance targeted towards facilities and
workovers. Pengrowth drilled one gas well during the quarter for a success rate of 100 percent.
This well production tested at a rate of 330 mcf per day and will be tied in during the third
quarter.
Other activities during the quarter included the completion and tie-in of 11 Viking gas wells (100
percent working interest) which were drilled in late 2006. Testing of the wells was initiated in
June and was completed in July with all wells on production. Initial rates from the first ten wells
averaged 190 mcf per day per well on a restricted flow rate. Completion and flow testing on the
last well of a six gas well program at Primate, also drilled in late 2006, was concluded during the
quarter. Combined initial test rates from four of the wells (100 percent working interest) were
5.7 mmcf per day and tie-in of these wells will proceed in the third quarter.
Construction of the gathering line for the horizontal wells drilled at East Bodo late last year
continued throughout the second quarter. The project is scheduled to be completed during the third
quarter 2007 and is anticipated to reduce operating costs for these wells as the produced fluids
will no longer need to be transported by truck. Also during the quarter, work was completed at
Cactus which diverted produced fluid to the main North Cactus battery allowing Pengrowth to shut
down the facilities at West Cactus resulting in maintenance and fuel gas cost reductions.
SOEP:
The Sable Offshore Energy Project (SOEP) produced approximately 41,864 mmcf of raw gas in the
second quarter of 2007. Gross production averaged approximately 460 mmcf per day in the second
quarter, an increase of 32 percent when compared to first quarter 2007 levels.
Production is comprised of approximately 87 percent natural gas and 17 percent NGLs. Pengrowths
working interest is 8.4 percent in this ExxonMobil Canada operated property.
Monthly raw gas production for April, May and June was 445 mmcf per day (37.4 mmcf per day net),
494 mmcf per day (41.6 mmcf per day net) and 440 mmcf per day (37 mmcf per day), respectively.
Downtime associated with the Goldboro sales gas compressors in April and a compression platform
shut in June due to mechanical issues resulted in the lower levels recorded during those months.
Capital development during the quarter totaled $0.9 million and has been significantly reduced due
to the completion of the compression project. Capital spending was mainly targeted towards
maintenance during the quarter.
PENGROWTH
ENERGY TRUST - 27 -
Consolidated Balance Sheets
(Stated in thousands of dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As at |
|
|
|
June 30 |
|
|
December 31 |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
169,094 |
|
|
$ |
151,719 |
|
Fair value of risk management contracts (Note 14) |
|
|
25,071 |
|
|
|
37,972 |
|
|
|
|
|
194,165 |
|
|
|
189,691 |
|
|
|
|
|
|
|
|
|
|
FAIR VALUE OF RISK MANAGEMENT CONTRACTS (Note 14) |
|
|
8,260 |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
DEPOSIT ON ACQUISITION |
|
|
|
|
|
|
103,750 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS (Note 3) |
|
|
21,142 |
|
|
|
36,132 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT |
|
|
4,633,861 |
|
|
|
3,741,602 |
|
|
|
|
|
|
|
|
|
|
GOODWILL (Note 2) |
|
|
657,191 |
|
|
|
598,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,514,619 |
|
|
$ |
4,669,972 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND UNITHOLDERS EQUITY
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Bank indebtedness (Note 5) |
|
$ |
327,193 |
|
|
$ |
9,374 |
|
Accounts payable and accrued liabilities |
|
|
180,380 |
|
|
|
201,056 |
|
Distributions payable to unitholders |
|
|
123,008 |
|
|
|
122,080 |
|
Due to Pengrowth Management Limited |
|
|
3,138 |
|
|
|
2,101 |
|
Contract liabilities |
|
|
4,840 |
|
|
|
5,017 |
|
|
|
|
|
638,559 |
|
|
|
339,628 |
|
|
|
|
|
|
|
|
|
|
FAIR VALUE OF RISK MANAGEMENT CONTRACTS (Note 14) |
|
|
321 |
|
|
|
1,367 |
|
|
|
|
|
|
|
|
|
|
CONTRACT LIABILITIES |
|
|
14,494 |
|
|
|
16,825 |
|
|
|
|
|
|
|
|
|
|
CONVERTIBLE DEBENTURES |
|
|
75,079 |
|
|
|
75,127 |
|
|
|
|
|
|
|
|
|
|
LONG TERM DEBT (Note 4) |
|
|
1,038,328 |
|
|
|
604,200 |
|
|
|
|
|
|
|
|
|
|
ASSET RETIREMENT OBLIGATIONS (Note 7) |
|
|
334,171 |
|
|
|
255,331 |
|
|
|
|
|
|
|
|
|
|
FUTURE INCOME TAXES (Note 6) |
|
|
500,515 |
|
|
|
327,817 |
|
|
|
|
|
|
|
|
|
|
TRUST UNITHOLDERS EQUITY (Note 8) |
|
|
|
|
|
|
|
|
Trust Unitholders capital |
|
|
4,410,716 |
|
|
|
4,383,993 |
|
Equity portion of convertible debentures |
|
|
160 |
|
|
|
160 |
|
Contributed surplus |
|
|
7,719 |
|
|
|
4,931 |
|
Deficit (Note 10) |
|
|
(1,505,443 |
) |
|
|
(1,339,407 |
) |
|
|
|
|
2,913,152 |
|
|
|
3,049,677 |
|
|
SUBSEQUENT EVENTS (Note 16) |
|
|
|
|
|
|
|
|
|
|
$ |
5,514,619 |
|
|
$ |
4,669,972 |
|
|
See accompanying notes to the consolidated financial statements.
PENGROWTH
ENERGY TRUST - 28 -
Consolidated Statements of Income and Deficit
(Stated in thousands of dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30 |
|
|
June 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales |
|
$ |
443,977 |
|
|
$ |
283,532 |
|
|
$ |
876,085 |
|
|
$ |
575,428 |
|
Unrealized gain (loss) on commodity risk
management (Note 14) |
|
|
79,682 |
|
|
|
(3,389 |
) |
|
|
(4,272 |
) |
|
|
(3,389 |
) |
Processing and other income |
|
|
5,025 |
|
|
|
4,117 |
|
|
|
9,750 |
|
|
|
7,901 |
|
Royalties, net of incentives |
|
|
(84,002 |
) |
|
|
(45,290 |
) |
|
|
(165,562 |
) |
|
|
(110,625 |
) |
|
NET REVENUE |
|
|
444,682 |
|
|
|
238,970 |
|
|
|
716,001 |
|
|
|
469,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
112,062 |
|
|
|
58,002 |
|
|
|
213,092 |
|
|
|
112,020 |
|
Transportation |
|
|
3,168 |
|
|
|
1,781 |
|
|
|
5,755 |
|
|
|
3,539 |
|
Amortization of injectants for miscible floods |
|
|
8,645 |
|
|
|
8,535 |
|
|
|
18,126 |
|
|
|
16,507 |
|
Interest on bank indebtedness |
|
|
5,028 |
|
|
|
|
|
|
|
12,422 |
|
|
|
|
|
Interest on long term debt |
|
|
16,538 |
|
|
|
6,511 |
|
|
|
32,591 |
|
|
|
12,289 |
|
General and administrative |
|
|
16,208 |
|
|
|
8,697 |
|
|
|
33,047 |
|
|
|
17,517 |
|
Management fee |
|
|
3,008 |
|
|
|
3,317 |
|
|
|
6,189 |
|
|
|
7,558 |
|
Foreign exchange gain (Note 11) |
|
|
(21,744 |
) |
|
|
(10,359 |
) |
|
|
(24,469 |
) |
|
|
(9,120 |
) |
Unrealized loss on foreign exchange risk management
(Note 14) |
|
|
6,366 |
|
|
|
|
|
|
|
13,691 |
|
|
|
|
|
Depletion, depreciation and amortization |
|
|
163,107 |
|
|
|
67,827 |
|
|
|
325,610 |
|
|
|
138,883 |
|
Accretion (Note 7) |
|
|
6,455 |
|
|
|
3,903 |
|
|
|
12,990 |
|
|
|
7,231 |
|
Other expenses |
|
|
1,889 |
|
|
|
3,308 |
|
|
|
3,074 |
|
|
|
4,788 |
|
|
|
|
|
320,730 |
|
|
|
151,522 |
|
|
|
652,118 |
|
|
|
311,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES |
|
|
123,952 |
|
|
|
87,448 |
|
|
|
63,883 |
|
|
|
158,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future income tax reduction (Note 6) |
|
|
147,707 |
|
|
|
22,668 |
|
|
|
137,942 |
|
|
|
18,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
271,659 |
|
|
$ |
110,116 |
|
|
$ |
201,825 |
|
|
$ |
176,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit, beginning of period |
|
|
(1,592,775 |
) |
|
|
(1,096,614 |
) |
|
|
(1,339,407 |
) |
|
|
(1,042,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid or declared |
|
|
(184,327 |
) |
|
|
(120,597 |
) |
|
|
(367,861 |
) |
|
|
(240,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFICIT, END OF PERIOD |
|
$ |
(1,505,443 |
) |
|
$ |
(1,107,095 |
) |
|
$ |
(1,505,443 |
) |
|
$ |
(1,107,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER TRUST UNIT (Note 13) |
Basic |
$ |
1.11 |
|
|
$ |
0.69 |
|
|
$ |
0.82 |
|
|
$ |
1.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
$ |
1.10 |
|
|
$ |
0.68 |
|
|
$ |
0.81 |
|
|
$ |
1.10 |
|
|
See accompanying notes to the consolidated financial statements.
PENGROWTH
ENERGY TRUST - 29 -
Consolidated Statements of Cash Flow
(Stated in thousands of dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30 |
|
|
June 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(Restated note 1) |
|
|
|
|
|
|
(Restated note 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
271,659 |
|
|
$ |
110,116 |
|
|
$ |
201,825 |
|
|
$ |
176,451 |
|
Depletion, depreciation and accretion |
|
|
169,562 |
|
|
|
71,730 |
|
|
|
338,600 |
|
|
|
146,114 |
|
Future income tax reduction |
|
|
(147,707 |
) |
|
|
(22,668 |
) |
|
|
(137,942 |
) |
|
|
(18,348 |
) |
Contract liability amortization |
|
|
(1,254 |
) |
|
|
(1,320 |
) |
|
|
(2,508 |
) |
|
|
(2,640 |
) |
Amortization of injectants |
|
|
8,645 |
|
|
|
8,535 |
|
|
|
18,126 |
|
|
|
16,507 |
|
Purchase of injectants |
|
|
(5,922 |
) |
|
|
(6,682 |
) |
|
|
(10,622 |
) |
|
|
(17,297 |
) |
Expenditures on remediation |
|
|
(1,435 |
) |
|
|
(2,470 |
) |
|
|
(4,542 |
) |
|
|
(3,850 |
) |
Deferred charges and other non cash items |
|
|
52 |
|
|
|
|
|
|
|
(157 |
) |
|
|
(2,364 |
) |
Unrealized foreign exchange (gain) loss (Note 11) |
|
|
(24,661 |
) |
|
|
(10,360 |
) |
|
|
(27,455 |
) |
|
|
(9,360 |
) |
Unrealized
(gain) loss on risk management contracts (Note 14) |
|
|
(73,316 |
) |
|
|
3,389 |
|
|
|
17,963 |
|
|
|
3,389 |
|
Trust unit based compensation (Note 9) |
|
|
1,495 |
|
|
|
559 |
|
|
|
3,241 |
|
|
|
1,911 |
|
Amortization of deferred charges |
|
|
1,414 |
|
|
|
1,716 |
|
|
|
2,762 |
|
|
|
3,292 |
|
Changes in non-cash operating working capital (Note 12) |
|
|
51,428 |
|
|
|
(25,745 |
) |
|
|
(12,902 |
) |
|
|
(10,645 |
) |
|
|
|
|
249,960 |
|
|
|
126,800 |
|
|
|
386,389 |
|
|
|
283,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid (Note 10) |
|
|
(183,751 |
) |
|
|
(120,400 |
) |
|
|
(366,933 |
) |
|
|
(240,445 |
) |
Bank indebtedness |
|
|
(200,199 |
) |
|
|
|
|
|
|
317,819 |
|
|
|
|
|
Change in long term debt, net |
|
|
|
|
|
|
76,000 |
|
|
|
463,000 |
|
|
|
127,000 |
|
Proceeds from issue of trust units |
|
|
14,088 |
|
|
|
7,948 |
|
|
|
26,270 |
|
|
|
17,391 |
|
|
|
|
|
(369,862 |
) |
|
|
(36,452 |
) |
|
|
440,156 |
|
|
|
(96,054 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisition (Note 2) |
|
|
(590 |
) |
|
|
|
|
|
|
(923,251 |
) |
|
|
|
|
Expenditures on property, plant and equipment |
|
|
(49,467 |
) |
|
|
(47,999 |
) |
|
|
(148,252 |
) |
|
|
(123,060 |
) |
Other property acquisitions |
|
|
|
|
|
|
(3,554 |
) |
|
|
|
|
|
|
(53,356 |
) |
Proceeds on property dispositions |
|
|
197,315 |
|
|
|
1,051 |
|
|
|
272,034 |
|
|
|
17,753 |
|
Change in remediation trust funds |
|
|
(1,598 |
) |
|
|
(279 |
) |
|
|
(2,963 |
) |
|
|
(670 |
) |
Purchase of marketable securities |
|
|
|
|
|
|
(19,990 |
) |
|
|
|
|
|
|
(19,990 |
) |
Change in non-cash investing working capital (Note 12) |
|
|
(25,758 |
) |
|
|
(12,039 |
) |
|
|
(24,113 |
) |
|
|
7,981 |
|
|
|
|
|
119,902 |
|
|
|
(82,810 |
) |
|
|
(826,545 |
) |
|
|
(171,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH |
|
|
|
|
|
|
7,538 |
|
|
|
|
|
|
|
15,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BANK INDEBTEDNESS AT BEGINNING OF PERIOD |
|
|
|
|
|
|
(6,341 |
) |
|
|
|
|
|
|
(14,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
|
$ |
|
|
|
$ |
1,197 |
|
|
$ |
|
|
|
$ |
1,197 |
|
|
See accompanying notes to the consolidated financial statements.
PENGROWTH ENERGY TRUST - 30 -
Notes To Consolidated Financial Statements
(Unaudited)
June 30, 2007
(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 (the Trust) and all of its subsidiaries (collectively referred to as
Pengrowth), including Pengrowth Corporation (the Corporation). The financial statements do
not contain the accounts of Pengrowth Management Limited (the Manager). As of June 30, 2007,
the Trust owned 100 percent of the royalty units and 91 percent of the common shares of the
Corporation. |
|
|
|
The financial statements have been prepared by management in accordance with generally accepted
accounting principles 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, 2006, except as discussed below.
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, 2006. |
|
|
|
Certain comparative figures have been reclassified to conform to the presentation adopted in
current period. For the six months ended June 30, 2006, the change in non-cash operating working
capital was decreased by $26.8 million to a use of cash of $10.6 million with a corresponding
increase to the change in non-cash investing working capital. For the three months ended June
30, 2006, the change in non-cash operating working capital was increased by $8.5 million to a
use of cash of $25.7 million with a corresponding decrease to the change in non-cash investing
working capital. There was no impact to the reported total change in non-cash working capital. |
|
|
|
Change in Accounting Policies |
|
|
|
Effective January 1, 2007, Pengrowth adopted several new and revised Canadian accounting
standards related to financial instruments. The new handbook sections provide standards for the
recognition and measurement of financial instruments and the use of hedge accounting. A
statement of comprehensive income is required pursuant to the new standards. Certain gains and
losses and other amounts arising from changes in fair value are temporarily recorded outside the
income statement in other comprehensive income. The new standards have been adopted on a
prospective basis with no restatement to prior period financial statements. |
|
|
|
The new standards for financial instruments require all financial instruments to be classified
into one of five categories: held for trading, held to maturity investments, loans and
receivables, available for sale financial assets or other liabilities. Pengrowth has designated
cash and cash equivalents as held for trading which are measured at fair value. Accounts
receivable are classified as loans and receivables which are measured at amortized cost.
Investments held in the remediation trust funds has been designated as held to maturity and held
for trading based on the type of investments in the fund. Held to maturity investments are
measured at amortized cost and held for trading investments are measured at fair value. Bank
indebtedness, accounts payable and accrued liabilities, distributions payable, due to the
Manager and long term debt have been classified as other liabilities which are measured at
amortized cost using the effective interest rate method. The convertible debentures are
accounted in accordance with the accounting policy disclosed in the notes to the 2006
consolidated financial statements. The debt portion of the convertible debentures has been
measured at amortized cost which approximated its carrying value on the date of adoption. |
|
|
|
All derivatives are classified as held for trading which are measured at fair value with changes
in fair value over a reporting period recognized in net income. Changes in the fair value of
derivatives used in certain hedging transactions for which hedge accounting is permitted would
be recorded in other comprehensive income. Presently, Pengrowth does not have any risk
management contracts outstanding for which hedge accounting is being applied. |
PENGROWTH ENERGY TRUST - 31 -
|
|
Transaction costs incurred in connection with the issuance of term debt instruments with a
maturity of greater than one year are deducted against the carrying value of the debt and
amortized to net income using the effective interest rate method over the expected life of the
debt. Transaction costs incurred in connection with the issuance of other debt instruments are
expensed as incurred. Pengrowth had deferred $2.8 million of debt issue costs related to prior
issuances of private placement debt. The deferred issue costs were being amortized on a
straight-line basis over the term of the debt. On January 1, 2007, an adjustment of $1.6
million was made to reduce the carrying amount of the related debt and other assets. No
adjustment was made to opening retained earnings for the cumulative effect of the change in
accounting policy as the amount was not significant. |
|
|
|
Effective January 1, 2007, Pengrowth ceased to designate an existing foreign exchange swap as a
cash flow hedge of the U.K. term debt. As the hedging relationship qualified for hedge
accounting under the revised hedging standards, $13.6 million of deferred foreign exchange loss
related to the debt was reclassified to accumulated other comprehensive income. An asset
related to the fair value of the foreign exchange swap of $13.9 million was recognized on the
balance sheet on January 1, 2007 with a corresponding adjustment to reduce accumulated other
comprehensive income. The remaining balance in accumulated other comprehensive income of $0.3
million was reclassified to net income in the period as the amount was not significant. |
|
|
|
Accounting Changes |
|
|
|
New Canadian accounting recommendations for capital disclosures have been issued which will
require additional disclosure of both qualitative and quantitative information about objectives,
policies and processes for managing capital. These recommendations are effective beginning
January 1, 2008. |
|
|
|
New Canadian accounting recommendations for additional disclosures about financial instruments
have been issued which will require disclosure and presentation of financial instruments about
the nature and extent of risks arising from financial instruments to which Pengrowth is exposed.
These recommendations are effective beginning January 1, 2008. |
|
2. |
|
ACQUISITION |
|
|
|
On January 22, 2007 Pengrowth acquired four subsidiaries of Burlington Resources Canada
Ltd., a subsidiary of ConocoPhillips (the CP properties), which hold Canadian oil and natural
gas properties and undeveloped land. The transaction was accounted for using the purchase method
of accounting with the allocation of the purchase price and consideration paid as follows: |
|
|
|
|
|
Allocation of purchase price: |
|
|
|
|
Property, plant and equipment |
|
$ |
1,363,438 |
|
Goodwill |
|
|
58,889 |
|
Asset retirement obligations |
|
|
(84,766 |
) |
Future income taxes |
|
|
(310,640 |
) |
|
|
|
$ |
1,026,921 |
|
|
|
|
|
|
|
Consideration: |
|
|
|
|
Cash |
|
$ |
1,025,038 |
|
Acquisition costs |
|
|
1,883 |
|
|
|
|
$ |
1,026,921 |
|
|
|
|
Property, plant and equipment represents the fair value of the assets acquired determined in
part by an independent reserve evaluation. Goodwill, which is not deductible for tax purposes,
was determined based on the excess of the total consideration paid less the value assigned to
the identifiable assets and liabilities including the future tax liability. |
|
|
|
The future income tax liability was determined based on the enacted income tax rate at the date
of acquisition of approximately 29 percent. The asset retirement obligations were determined
using Pengrowths estimated costs to remediate, reclaim and abandon the wells and facilities,
the estimated timing of the costs to be incurred in future periods, an inflation rate of two
percent and a discount rate of eight percent. |
PENGROWTH ENERGY TRUST - 32 -
|
|
Results of operations from the CP properties subsequent to the acquisition date are included
in the consolidated financial statements. Final determination of the cost of the acquisition
and the allocation thereof to the fair values of the CP properties is still pending. |
|
3. |
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
|
|
|
As at |
|
As at |
|
|
June 30, 2007 |
|
December 31, 2006 |
|
Deferred compensation expense (net of accumulated
amortization of $5,077, 2006 $2,381) |
|
$ |
|
|
|
$ |
2,696 |
|
Debt issue costs (net of accumulated amortization of,
2006 $1,192) |
|
|
|
|
|
|
1,626 |
|
|
|
|
|
|
|
|
|
4,322 |
|
Deferred foreign exchange loss on translation of U.K.
debt (Note 1) |
|
|
|
|
|
|
13,631 |
|
Remediation trust funds |
|
|
14,107 |
|
|
|
11,144 |
|
Equity investment |
|
|
7,035 |
|
|
|
7,035 |
|
|
|
|
$ |
21,142 |
|
|
$ |
36,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
As at |
|
|
June 30, 2007 |
|
December 31,2006 |
|
U.S. dollar denominated debt: |
|
|
|
|
|
|
|
|
U.S. dollar 150 million senior unsecured notes at 4.93
percent due April 2010 |
|
$ |
159,164 |
|
|
$ |
174,810 |
|
U.S. dollar 50 million senior unsecured notes at 5.47
percent due April 2013 |
|
|
53,055 |
|
|
|
58,270 |
|
|
|
|
|
212,219 |
|
|
|
233,080 |
|
Pound sterling denominated 50 million unsecured notes
at 5.46 percent due December 2015 |
|
|
106,109 |
|
|
|
114,120 |
|
Canadian dollar revolving credit borrowings |
|
|
720,000 |
|
|
|
257,000 |
|
|
|
|
$ |
1,038,328 |
|
|
$ |
604,200 |
|
|
|
|
Pengrowth has a $1.2 billion syndicated extendible revolving term credit. The facility is
unsecured, covenant based and has a three year term maturing June 16, 2010. Pengrowth has the
option to extend the facility each year, subject to the approval of the lenders, or repay the
entire balance at the end of the three year term. Various borrowing options are available under
the facility including prime rate based advances and bankers acceptance loans. This facility
carries floating interest rates that are expected to range between 0.60 percent and 1.15 percent
over bankers acceptance rates depending on Pengrowths consolidated ratio of senior debt to
earnings before interest, taxes and non-cash items. In addition, Pengrowth has a $35 million
operating line of credit. The facilities were reduced by drawings of $720 million and
outstanding letters of credit of approximately $16.8 million at June 30, 2007. |
|
|
|
As of June 30, 2007, an unrealized cumulative foreign exchange gain of $77.2 million (December
31, 2006 $57.2 million) has been recognized on the U.S. dollar term notes since the date of
issuance. As of June 30, 2007, an unrealized cumulative foreign exchange gain of $7.5 million
has been recognized on the U.K pound sterling denominated term notes since Pengrowth ceased to
designate the existing foreign exchange swap as a hedge of the U.K. term debt on January 1, 2007 (Note 1). |
PENGROWTH ENERGY TRUST - 33 -
5. |
|
BANK INDEBTEDNESS |
|
|
|
In conjunction with acquiring the CP properties, Pengrowth entered into a new $600 million
credit facility syndicated among ten financial institutions. The facility is unsecured,
covenant based and has a one year term. The facility must be repaid in full on January 22,
2008. Various borrowing options are available under the facility including prime rate based
advances and bankers acceptance loans. The facility carries floating interest rates that are
expected to range between 0.65 percent and 1.15 percent over bankers acceptance rates,
depending on Pengrowths consolidated ratio of senior debt to earnings before interest, taxes
and non-cash items. Certain net proceeds from any future asset dispositions, equity offerings
or debt issuances are required to repay the amount borrowed under this credit facility. As at
June 30, 2007, Pengrowth had drawn $322 million on the credit facility. |
|
|
|
In addition, Pengrowth has outstanding cheques in excess of cash of $5.2 million at June 30,
2007 (December 31, 2006 $9.4 million). |
|
6. |
|
INCOME TAXES |
|
|
|
As a result of the recent changes to income trust tax legislation modifying the taxation of
certain flow-through entities including mutual fund trusts and their unitholders, a $71 million
future income tax reduction was recorded in the three months ended June 30, 2007, resulting from
the tax basis of the assets in the Trust exceeding their book basis. These changes apply a tax
at the trust level on distributions of certain income at a rate of tax comparable to the
combined federal and provincial corporate tax rate. The distribution tax will only apply in
respect of distributions of income and will not apply to returns of capital. It is expected
that Pengrowth will not be subject to the recent tax changes until January 1, 2011. The future
tax reduction recorded in the second quarter as a result of this new tax legislation is a
non-cash recovery relating to the differences between the accounting and tax basis of assets and
liabilities held in the Trust. Previously, future income taxes were recorded only on the
temporary differences in the corporate subsidiaries of the Trust. |
|
7. |
|
ASSET RETIREMENT OBLIGATIONS (AR0) |
|
|
|
The following reconciles Pengrowths ARO: |
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Twelve months ended |
|
|
June 30, 2007 |
|
December 31, 2006 |
|
Asset retirement obligations, beginning of period |
|
$ |
255,331 |
|
|
$ |
184,699 |
|
Increase (decrease) in liabilities during the period related to: |
|
|
|
|
|
|
|
|
Acquisitions |
|
|
84,766 |
|
|
|
72,680 |
|
Disposals |
|
|
(16,156 |
) |
|
|
(1,500 |
) |
Additions |
|
|
1,782 |
|
|
|
1,649 |
|
Revisions |
|
|
|
|
|
|
(9,695 |
) |
Accretion expense |
|
|
12,990 |
|
|
|
16,591 |
|
Liabilities settled during the period |
|
|
(4,542 |
) |
|
|
(9,093 |
) |
|
Asset retirement obligations, end of period |
|
$ |
334,171 |
|
|
$ |
255,331 |
|
|
PENGROWTH ENERGY TRUST - 34 -
8. |
|
TRUST UNITS |
|
|
|
The total authorized capital of Pengrowth is 500,000,000 trust units. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Year ended |
|
|
June 30, 2007 |
|
December 31, 2006 |
|
|
Number |
|
|
|
|
|
Number |
|
|
Trust units issued |
|
of trust units |
|
Amount |
|
of trust units |
|
Amount |
|
Balance, beginning of period |
|
|
244,016,623 |
|
|
$ |
4,383,993 |
|
|
|
159,864,083 |
|
|
$ |
2,514,997 |
|
Issued for the Esprit Trust business combination (non-cash) |
|
|
|
|
|
|
|
|
|
|
34,725,157 |
|
|
|
895,944 |
|
Issued for cash |
|
|
|
|
|
|
|
|
|
|
47,575,000 |
|
|
|
987,841 |
|
Issue costs |
|
|
|
|
|
|
(745 |
) |
|
|
|
|
|
|
(51,575 |
) |
Issued on redemption of Deferred Entitlement Trust Units (DEUs) |
|
|
2,931 |
|
|
|
55 |
|
|
|
14,523 |
|
|
|
233 |
|
Issued for cash on exercise of trust unit options and rights |
|
|
249,084 |
|
|
|
3,071 |
|
|
|
607,766 |
|
|
|
9,476 |
|
Issued for cash under Distribution Reinvestment Plan (DRIP) |
|
|
1,276,677 |
|
|
|
23,944 |
|
|
|
1,226,806 |
|
|
|
26,049 |
|
Issued on redemption of Royalty Units (non-cash) |
|
|
14,952 |
|
|
|
|
|
|
|
3,288 |
|
|
|
|
|
Trust unit rights incentive plan (non-cash exercised) |
|
|
|
|
|
|
398 |
|
|
|
|
|
|
|
1,028 |
|
|
Balance, end of period |
|
|
245,560,267 |
|
|
$ |
4,410,716 |
|
|
|
244,016,623 |
|
|
$ |
4,383,993 |
|
|
|
|
During the six month period ended June 30, 2007, 9,630 Class A trust units were converted to
consolidated trust units. At June 30, 2007, 1,888 Class A trust units remain outstanding. All
other trust units outstanding are consolidated trust units. |
|
|
|
During the six month period ended June 30, 2007, the remaining 14,952 royalty units not held by
the Trust were converted to consolidated trust units. |
|
|
|
Contributed Surplus |
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Year ended |
|
|
June 30, 2007 |
|
December 31, 2006 |
|
Balance, beginning of period |
|
$ |
4,931 |
|
|
$ |
3,646 |
|
Trust unit rights incentive plan (non-cash expensed) |
|
|
1,259 |
|
|
|
1,298 |
|
Deferred entitlement trust units (non-cash expensed) |
|
|
1,982 |
|
|
|
1,248 |
|
Trust unit rights incentive plan (non-cash exercised) |
|
|
(398 |
) |
|
|
(1,028 |
) |
Deferred entitlement trust units (non-cash exercised) |
|
|
(55 |
) |
|
|
(233 |
) |
|
Balance, end of period |
|
$ |
7,719 |
|
|
$ |
4,931 |
|
|
9. |
|
TRUST UNIT BASED COMPENSATION PLANS |
|
|
|
Up to ten percent of the issued and outstanding trust units, to a maximum of 13.8 million
trust units, may be reserved for DEUs, rights and option grants, in aggregate. |
|
|
|
Long Term Incentive Program
Pengrowth recorded compensation expense of $2.0 million in the six months ended June 30, 2007
(June 30, 2006 $1.1 million) related to DEUs with a weighted average grant date fair value of
$20.29 per DEU (June 30, 2006 $20.69 per DEU). For the six months ended June 30, 2007, 2,931
trust units were issued on redemption of DEUs by retiring employees. |
PENGROWTH ENERGY TRUST - 35 -
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Year ended |
Number of DEUs |
|
June 30, 2007 |
|
December 31, 2006 |
|
Outstanding, beginning of period |
|
|
399,568 |
|
|
|
185,591 |
|
Granted |
|
|
363,758 |
|
|
|
222,088 |
|
Forfeited |
|
|
(36,275 |
) |
|
|
(33,981 |
) |
Exercised |
|
|
(2,931 |
) |
|
|
(14,207 |
) |
Deemed DRIP |
|
|
49,455 |
|
|
|
40,077 |
|
|
Outstanding, end of period |
|
|
773,575 |
|
|
|
399,568 |
|
|
|
|
Trust Unit Rights Incentive Plan
As at June 30, 2007, rights to purchase 2,351,404 trust units were outstanding (December 31,
2006 1,534,241) that expire at various dates to May 7, 2012. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Year Ended |
|
|
June 30, 2007 |
|
December 31, 2006 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Number |
|
average |
|
Number |
|
average |
|
|
of rights |
|
exercise price |
|
of rights |
|
exercise price |
|
Outstanding at beginning of period |
|
|
1,534,241 |
|
|
$ |
16.06 |
|
|
|
1,441,737 |
|
|
$ |
14.85 |
|
Granted (1) |
|
|
1,122,408 |
|
|
$ |
19.96 |
|
|
|
617,409 |
|
|
$ |
22.39 |
|
Exercised |
|
|
(246,384 |
) |
|
$ |
12.32 |
|
|
|
(452,468 |
) |
|
$ |
14.75 |
|
Forfeited |
|
|
(58,861 |
) |
|
$ |
19.45 |
|
|
|
(72,437 |
) |
|
$ |
17.47 |
|
|
Outstanding at period-end |
|
|
2,351,404 |
|
|
$ |
17.58 |
|
|
|
1,534,241 |
|
|
$ |
16.06 |
|
|
Exercisable at period-end |
|
|
1,340,399 |
|
|
$ |
16.21 |
|
|
|
969,402 |
|
|
$ |
14.22 |
|
|
|
|
|
(1) |
|
Weighted average exercise price of rights granted are based on the exercise price at the date of grant. |
|
|
Compensation expense associated with the trust unit rights granted during 2007 was based on
the estimated fair value of $2.06 per trust unit right (June 30, 2006 $1.86). The fair value of
trust unit rights granted in 2007 was estimated using a binomial lattice option pricing model with
the following assumptions: risk-free rate of four percent, volatility of 23 percent, expected
distribution yield of 14 percent and reductions in the exercise price over the life of the trust
unit rights. The binomial lattice model calculated a value of ten percent of the exercise price
for the trust unit rights granted in 2007. The estimated cost is reduced by the estimated
forfeitures at the date of grant which has been estimated at five percent for directors and
officers and ten percent for employees. Compensation expense is recorded as these obligations
vest. Compensation expense related to the trust unit rights for the six months ended June 30, 2007
was $1.3 million (June 30, 2006 $0.8 million). |
|
|
|
Trust Unit Option Plan
During the six months ended June 30, 2007, 2,700 trust unit rights were exercised at a weighted
average exercise price of $12.98 and 6,240 trust units options were forfeited at a weighted
average exercise price of $17.70. As at June 30, 2007, options to purchase 89,679 trust units
were outstanding with a weighted average exercise price of $16.10. |
|
|
|
Trust Unit Award Plan
Pengrowth established an incentive plan to reward and retain employees whereby trust units and
cash are awarded to eligible employees. The Trust Unit Award Plan was fully expensed as of June
30, 2007 and all awards under the plan were paid out subsequent to June 30, 2007. Pengrowth
acquired the trust units to be awarded under the plan on the open market for $5.1 million and
placed them in a trust account established for the benefit of the eligible employees. The cost
to acquire the trust units was recorded as deferred compensation expense and was charged to net
income on a straight-line basis over the vesting period. In addition, the cash portion of the
incentive plan of approximately $1.1 million was accrued on a straight line basis over the
vesting period. For the six months ended June 30, 2007, the amount charged to net income
related to the trust unit award plan including the cash portion of the award was $3.0 million
(June 30, 2006 $3.5 million). |
PENGROWTH ENERGY TRUST - 36 -
|
|
|
|
|
|
|
|
|
|
|
As at |
|
As at |
|
|
June 30, 2007 |
|
December 31, 2006 |
|
Accumulated earnings |
|
$ |
1,517,511 |
|
|
$ |
1,315,686 |
|
Accumulated distributions paid or declared |
|
|
(3,022,954 |
) |
|
|
(2,655,093 |
) |
|
|
|
$ |
(1,505,443 |
) |
|
$ |
(1,339,407 |
) |
|
|
|
Pengrowth is obligated by virtue of its Royalty and Trust Indentures and Net Profits Interest
agreement to distribute to unitholders a significant portion of its cash flow from operations.
Cash flow from operations typically exceeds net income as a result of non-cash expenses such as
unrecognized gain (losses) on commodity contracts, depletion, depreciation, future income tax
expense and accretion. These non-cash expenses result in a deficit being recorded despite
Pengrowth distributing less than its cash flow from operations. |
|
|
|
Distributions paid
Actual cash distributions paid for the six months ended June 30, 2007 were $366.9 million (June
30, 2006 $240.4 million). Distributions paid or declared have been determined in accordance
with the Trust Indenture. Distributions are declared payable in the following month after the
distributions were earned. The amount of cash withheld from funds available for distribution to
unitholders is at the discretion of the Board of Directors. |
|
11. |
|
FOREIGN EXCHANGE GAIN (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Unrealized foreign exchange gain on
translation of foreign currency
denominated debt |
|
$ |
24,661 |
|
|
$ |
10,360 |
|
|
$ |
27,455 |
|
|
$ |
9,360 |
|
Realized foreign exchange loss |
|
|
(2,917 |
) |
|
|
(1 |
) |
|
|
(2,986 |
) |
|
|
(240 |
) |
|
|
|
$ |
21,744 |
|
|
$ |
10,359 |
|
|
$ |
24,469 |
|
|
$ |
9,120 |
|
|
12. |
|
OTHER CASH FLOW DISCLOSURES |
|
|
|
Change in Non-Cash Operating Working Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
Cash provided by (used for): |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Accounts receivable |
|
$ |
34,368 |
|
|
$ |
(22,906 |
) |
|
$ |
(17,376 |
) |
|
$ |
9,816 |
|
Accounts payable and accrued liabilities |
|
|
15,327 |
|
|
|
1,426 |
|
|
|
3,437 |
|
|
|
(15,608 |
) |
Due to Pengrowth Management Limited |
|
|
1,733 |
|
|
|
(4,265 |
) |
|
|
1,037 |
|
|
|
(4,853 |
) |
|
|
|
$ |
51,428 |
|
|
$ |
(25,745 |
) |
|
$ |
(12,902 |
) |
|
$ |
(10,645 |
) |
|
|
|
Change in Non-Cash Investing Working Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
Cash provided by (used for): |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Accounts payable for capital accruals |
|
$ |
(25,758 |
) |
|
$ |
(12,039 |
) |
|
$ |
(24,113 |
) |
|
$ |
7,981 |
|
PENGROWTH ENERGY TRUST - 37 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Interest |
|
$ |
13,193 |
|
|
$ |
11,350 |
|
|
$ |
43,281 |
|
|
$ |
12,443 |
|
13. |
|
AMOUNTS PER TRUST UNIT |
|
|
|
The following reconciles the weighted average number of trust units used in the basic and
diluted net income per unit calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Weighted average number of trust units basic |
|
|
245,126,773 |
|
|
|
160,592,175 |
|
|
|
244,745,237 |
|
|
|
160,371,752 |
|
Dilutive effect of trust unit options, trust unit rights and DEUs |
|
|
951,033 |
|
|
|
725,888 |
|
|
|
478,144 |
|
|
|
636,185 |
|
|
Weighted average number of trust units diluted |
|
|
246,077,806 |
|
|
|
161,318,063 |
|
|
|
245,223,381 |
|
|
|
161,007,937 |
|
|
|
|
For the three months ended June 30, 2007, 4,004,177 (June 30, 2006 nil) trust units from
trust unit options, rights and the convertible debentures were excluded from the diluted net
income per unit calculation as their effect is anti-dilutive. For the six months ended June
30, 2007, 4,449,444 (June 30, 2006 nil) trust units from trust unit options, rights and the
convertible debentures were excluded from the diluted net income per unit calculation as their
effect is anti-dilutive. |
|
14. |
|
FINANCIAL INSTRUMENTS |
|
|
|
Risk Management
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 June 30, 2007, Pengrowth had fixed the price applicable to future production as follows: |
|
|
|
Crude Oil: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
Reference |
|
Price |
Remaining Term |
|
(bbl per day) |
|
point |
|
per bbl in Cdn$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial: |
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2007 Dec 31, 2007 |
|
|
15,000 |
|
|
WTI (1) |
|
$ |
76.15 |
|
Jan 1, 2008 Oct 31, 2008 |
|
|
1,000 |
|
|
WTI (1) |
|
$ |
74.25 |
|
Jan 1, 2008 Dec 31, 2008 |
|
|
8,500 |
|
|
WTI (1) |
|
$ |
76.00 |
|
|
PENGROWTH ENERGY TRUST - 38 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
Reference |
|
Price |
Remaining Term |
|
(mmbtu per day) |
|
point |
|
per mmbtu in Cdn$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial: |
|
|
|
|
|
|
|
|
|
|
|
|
Jul 1, 2007 Oct 31, 2007 |
|
|
5,000 |
|
|
Transco Z6 (1) |
|
$ |
11.62 |
|
Jan 1, 2008 Dec 31, 2008 |
|
|
5,000 |
|
|
Transco Z6 (1) |
|
$ |
10.90 |
|
Jul 1, 2007 Dec 31, 2007 |
|
|
12,500 |
|
|
TETCO M3 (1) |
|
$ |
9.03 |
|
Jul 1, 2007 Dec 31, 2007 |
|
|
7,500 |
|
|
NYMEX(1) |
|
$ |
8.94 |
|
Jul 1, 2007 Oct 31, 2007 |
|
|
9,478 |
|
|
AECO |
|
$ |
8.28 |
|
Jul 1, 2007 Dec 31, 2007 |
|
|
49,761 |
|
|
AECO |
|
$ |
7.97 |
|
Nov 1, 2007 Mar 31, 2008 |
|
|
2,370 |
|
|
AECO |
|
$ |
8.44 |
|
Jan 1, 2008 Dec 31, 2008 |
|
|
49,761 |
|
|
AECO |
|
$ |
8.38 |
|
Jul 1, 2007 Oct 31, 2007 |
|
|
4,739 |
|
|
AECO |
|
$ |
7.39-9.07 |
(2) |
Jul 1, 2007 Oct 31, 2007 |
|
|
5,000 |
|
|
Chicago MI (1) |
|
$ |
9.69 |
|
Jul 1, 2007 Dec 31, 2007 |
|
|
13,000 |
|
|
Chicago MI (1) |
|
$ |
8.76 |
|
Jan 1, 2008 Dec 31, 2008 |
|
|
5,000 |
|
|
Chicago MI (1) |
|
$ |
9.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Associated Cdn$ / U.S.$ foreign exchange rate has been fixed. |
|
(2) |
|
Costless collars |
|
|
The estimated fair value of the financial crude oil and natural gas contracts has been
determined based on the estimated amounts Pengrowth would receive or pay to terminate the
contracts. At June 30, 2007, the estimated amount Pengrowth would receive (pay) to terminate
the financial crude oil and natural gas contracts would be $(0.5) million and $33.3 million,
respectively. |
|
|
|
Pengrowth entered into a foreign exchange swap in conjunction with issuing the U.K. pound
sterling term notes (Note 4) which fixed the Canadian dollar to Pound Sterling exchange rate on
the interest and principal payments related to the notes. The estimated fair value of the
foreign exchange swap has been based on the amount Pengrowth would receive or pay to terminate
the contract at period end. At June 30, 2007, the estimated amount Pengrowth would receive to
terminate the contract would be $0.2 million. |
|
|
|
The fair value of the commodity and foreign exchange risk management contracts has been
allocated to current and non-current assets and liabilities on a contract by contract basis. |
|
|
|
Balance Sheet as at June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
exchange |
|
|
|
|
Commodity risk |
|
risk |
|
|
|
|
management |
|
management |
|
|
|
|
contracts |
|
contract |
|
Total |
|
Current portion of unrealized risk
management assets |
|
$ |
25,071 |
|
|
$ |
|
|
|
$ |
25,071 |
|
Non-current portion of unrealized risk
management assets |
|
|
8,078 |
|
|
|
182 |
|
|
|
8,260 |
|
Current portion of unrealized risk
management liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion of unrealized risk
management liabilities |
|
|
(321 |
) |
|
|
|
|
|
|
(321 |
) |
|
Total unrealized risk management asset |
|
$ |
32,828 |
|
|
$ |
182 |
|
|
$ |
33,010 |
|
|
|
|
The change in the fair value of the risk management contracts over the three months and six
months ended June 30, 2007 is recognized as an unrealized gain or loss on the consolidated
statements of income. A summary of the unrealized gains (losses) recorded in net income are
provided below: |
PENGROWTH ENERGY TRUST - 39 -
Three months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
exchange |
|
|
|
|
Commodity risk |
|
risk |
|
|
|
|
management |
|
management |
|
|
|
|
contracts |
|
contract |
|
Total |
|
Total unrealized risk management asset at June 30, 2007 |
|
$ |
32,828 |
|
|
$ |
182 |
|
|
$ |
33,010 |
|
Less: Unrealized risk management asset (liability) at March 31, 2007 |
|
|
(46,854 |
) |
|
|
6,548 |
|
|
|
(40,306 |
) |
|
Unrealized gain (loss) on risk management contracts |
|
$ |
79,682 |
|
|
$ |
(6,366 |
) |
|
$ |
73,316 |
|
|
Six months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
exchange |
|
|
|
|
Commodity risk |
|
risk |
|
|
|
|
management |
|
management |
|
|
|
|
contracts |
|
contract |
|
Total |
|
Total unrealized risk management asset at June 30, 2007 |
|
$ |
32,828 |
|
|
$ |
182 |
|
|
$ |
33,010 |
|
Less: Unrealized risk management asset (liability) at January 1, 2007 |
|
|
37,100 |
|
|
|
13,873 |
|
|
|
50,973 |
|
|
Unrealized gain (loss) on risk management contracts |
|
$ |
(4,272 |
) |
|
$ |
( 13,691 |
) |
|
$ |
(17,963 |
) |
|
|
|
Natural Gas Fixed Price Sales Contract
Pengrowth assumed a natural gas fixed price physical sales contract in conjunction with an
acquisition. The estimated fair value of the liability associated with these contracts was
recorded at the date of acquisition and is being reduced as the contracts are settled. At June
30, 2007, the amount Pengrowth would pay to terminate the fixed price sales contract would be
$13.2 million. Details of the physical fixed price sales contract are provided below: |
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
Price |
Remaining Term |
|
(mmbtu per day) |
|
per mmbtu (1) |
|
|
|
|
|
|
|
|
|
|
2007 to
2009 |
|
|
|
|
|
|
|
|
Jul 1, 2007 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 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reference price based on AECO |
Fair value of financial instruments
The carrying value of financial instruments, excluding those listed below, approximate their
fair value due to their short maturity. Risk management contracts are recorded at fair value in
the balance sheet. The remaining financial instruments are recorded in the balance sheet at
historical cost. The estimated fair value of these financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2007 |
|
As at December 31, 2006 |
|
|
|
|
|
|
Net book |
|
|
|
|
|
Net book |
|
|
Fair value |
|
value |
|
Fair value |
|
value |
|
Remediation funds |
|
$ |
14,153 |
|
|
$ |
14,107 |
|
|
$ |
11,162 |
|
|
$ |
11,144 |
|
U.S. dollar denominated debt |
|
|
204,436 |
|
|
|
212,219 |
|
|
|
224,624 |
|
|
|
233,080 |
|
Pound sterling denominated debt |
|
|
97,737 |
|
|
|
106,109 |
|
|
|
109,692 |
|
|
|
114,120 |
|
Convertible debentures |
|
|
75,122 |
|
|
|
75,079 |
|
|
|
75,488 |
|
|
|
75,127 |
|
|
PENGROWTH ENERGY TRUST - 40 -
15. |
|
OTHER COMPREHENSIVE INCOME |
|
|
|
There are no items included in other comprehensive income during the three months and six
months ended June 30, 2007 other than net income. |
|
16. |
|
SUBSEQUENT EVENTS |
|
|
|
Subsequent to June 30, 2007, additional revolving term debt capacity was used to fully repay
the balance of the short term bank indebtedness that was incurred in conjunction with the
acquisition of the CP properties. |
|
|
|
On July 26, 2007, Pengrowth closed a U.S. $400 million private placement of senior unsecured
notes. The notes are due July 26, 2017 and pay interest of 6.35 percent semi-annually. The
notes contain certain financial maintenance covenants similar to Pengrowths revolving credit
facility. The notes rank equally to Pengrowths other senior unsecured notes and Pengrowths
revolving credit facility. |