Information  X 
Enter a valid email address

Adulis Resources Inc (ADS)

  Print   

Friday 24 June, 2005

Adulis Resources Inc

1st Quarter Results

Adulis Resources Inc.
24 June 2005

                             ADULIS RESOURCES INC.



          FINANCIAL REVIEW AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2005.





Adulis Resources Inc. (TSX-V:ADE; AIM:ADS), the Colombia-focused independent oil
and gas exploration and production company, today announces its Q1 results for
the quarter ended 31 March 2005.

HIGHLIGHTS

  • The consolidated financial information includes the revenue and expense
    for Adulis' wholly owned subsidiary, Solana, only for the quarter ended
    March 31, 2005. The revenue of $294,700, less operating costs of $78,481,
    yielded an operating profit of $216,219.
  • The Company's cash balance at March 31, 2005 amounting to $50,802,041 and
    $900,000 in restricted cash are committed to the planned capital expenditure
    program in Colombia, which will result in eight (8) additional exploration
    wells and one (1) development well to be drilled in the calendar years of
    2005 and 2006. The Company currently has sufficient working capital to meet
    these commitments.
  • The Company expects to complete its exploratory drilling programme by
    early March 2006. As of May 2005, the Company had drilled one (1) successful
    well and plugged and abandoned three (3) other exploratory wells. Through
    the summer months of 2005, the Company plans to participate in the drilling
    of four (4) additional exploratory wells.

Stephen Newton, President, Adulis Resources Inc., commented:

'Our focus in 2005 is very much on the drill bit. We expect to have the working
capital to carry out our exploratory drilling programme, and are looking forward
to the results of the wells we plan to participate in through the summer months
of 2005. The discovery made in early 2005, which has led to a near term
development location and an additional exploratory well location, justifies our
faith in Colombia and the remainder of the calendar year should prove to be an
exciting period for the Company.'

Enquiries:


Adulis Resources     Stephen Newton            [email protected]         + 0057 1 629 1636
                     Ray Antony                [email protected]                         + 00 403 266 7512

Pelham Public        James Henderson           [email protected]              +4402077436673
Relations
                     Charles Vivian            [email protected]               +4402077436672

MANAGEMENT DISCUSSION & ANALYSIS

The discussion and analysis that follows is intended to provide a summary of
Adulis Resources Inc.'s ('Adulis' or 'the Company') activities and results over
the three month periods ended March 31, 2005 and 2004 as well as its financial
position and future prospects.  It should be read in conjunction with audited
consolidated financial statements for the years ended December 31, 2004 and
2003.  All numbers in this discussion and analysis are expressed in Canadian
dollars unless otherwise indicated.

Adulis Resources Inc. ('Adulis') is a resource exploration and production
company headquartered in Calgary, Alberta, Canada.  Adulis is engaged in the
exploration for and the acquisition, development and production of oil and
natural gas.  The company's exploration and development properties are located
in Colombia, South America through its wholly owned subsidiary, Solana Petroleum
Exploration Colombia Limited ('Solana'). More information is available at
www.adulisresources.com.

ASSETS

Adulis holds a 100% interest (subject to a 30% back-in right by Ecopetrol, the
Colombian state-owned oil company) in the Salinas Block of northeast Colombia.
In addition, Adulis holds additional acreage by virtue of its 100% ownership of
Solana.  Solana is a private Cayman Island registered company with a branch in
Colombia.  All of Solana's production and exploration assets are in Colombia,
where it operates the Guepaje Gas Field, presently producing 5MMCF/day and
participates in the producing Inchiyaco oil field, which produces approximately
250 Bopd gross.  Solana has varying interests in three company-operated
exploration areas totaling 66,000 hectares in addition to its participation in a
Ramshorn (Nabors) / Ecopetrol Shared Risk Contract.  Solana also has a 35% net
participating interest in an exploration/development block in southern Colombia
operated by Argosy Energy LLP.  A recent discovery which has been made on this
block, Guayuyaco 1, is now undergoing a long-term production test.  The
exploration areas held by Adulis and Solana are located throughout Colombia and
are focused in the Guajira, Magdalena, Llanos, Catatumbo and Putumayo Basins and
are all close to producing fields and infrastructure.



Asset Summary



•         10 blocks originally held in late 2004 with firm drilling commitments

•         Drilling in early 2005 resulted in two dry holes and one discovery.
This discovery has led  to one near-term development location and one additional
exploratory well location planned for late 2005

•         3 option blocks

•         2 blocks held for production

•         Drilling is currently underway and will continue for 12 to 18 months
on currently held acreage

•         The Company is continuing to evaluate and file new applications for
additional acreage



FINANCIAL REVIEW



Results of Operations for the Three Months Ending March 31, 2005



Upon the acquisition of the Company's wholly owned subsidiary, Solana Petroleum
Exploration (Colombia) Limited in 2004, this consolidated financial information
includes the revenue and expenses of the subsidiary only for the quarter ended
March 31, 2005.  As a result, the revenue of $294,700, less operating costs of
$78,481, yielded an operating profit of $216,219.



General and administrative expenses for the three month period ended March 31,
2005 amounted to $710,131 in comparison to $117,175 for the same period ended
March 31, 2004, an increase of 506%. The major components of general and
administrative expenses are as follows:


                                                                                2004                  2003

                                                                        $                      $
General office                                                               441,539                11,463
Professional fees                                                            142,084                47,456
Public company costs                                                          19,896                 7,216
Consulting fees                                                              106,612                51,000



All the sub-categories of general and administrative expenses increased due to
the current period's activities of adding the appropriate infrastructure with
personnel costs associated with two offices. Furthermore, general and
administrative costs for the three month period ended March 31, 2005
attributable to Solana amounted to $368,720.



Depletion, depreciation and accretion amounted to $133,883, compared to the same
period a year ago, which was $NIL.  The depletion expense is calculated based on
the decline in proved reserves, and amounts to $92,514.  Depreciation amounts to
$23,968 on the Company's capital assets, primarily office equipment and
leasehold improvements.

Accretion expense amounting to $17,401 represents the future estimated costs to
plug and abandon its petroleum and natural gas wells at the end of their useful
lives.



The foreign exchange gain of $547,492 in the three month period ended March 31,
2005 (2004 - $NIL) reflects substantially the overall appreciation of the
Canadian dollar against the U.S. dollar.



Stock-based compensation increased to $604,350 from $45,900 in the prior period
primarily from the amortization of costs associated with the vesting of options
granted in the fourth quarter of 2004 and the first quarter of 2005.



Other income and expenses relate to interest income in the current three month
period ended amounting to $154,003 compared to $15,419 which is representative
of larger cash balances held throughout the current period.



The income tax expense amounting to $50,000 (2004 - $NIL) which is the Canadian
Large Corporations Tax.



The resulting net loss amounting to $530,830 for the quarter ended March 31,
2005 relative to the net loss amounting to $147,616 for the prior period
reflects the increased activity of the Company in general to its efforts to
capture the potential in Colombia, and the netting of $604,530 in non-cash
expense for stock-based compensation and, as well, the unrealized foreign
exchange gain amounting to $547,492.



The Company's share capital increased to $111,672,972 at March 31, 2005 from
$110,257,972 at December 31, 2004 due to the exercise of 565,000 purchase
warrants amounting to $1,355,000 and the exercise of 100,000 stock options
amounting to $60,000.



LIQUIDITY



Adulis' working capital decreased from $58,678,428 at December 31, 2004, to
$51,334,952 at March 31, 2005, largely due to the cash outflow related to the
Company's investing activities in the three month period ended March 31, 2005.



The Company's cash balances at March 31, 2005 amounting to $50,802,041 and
$900,000 in restricted cash are committed to the Company's planned capital
expenditure program in Colombia, which will result in eight (8) additional
exploration wells and one (1) development well to be drilled in the calendar
years of 2005 and 2006. The Company currently has sufficient working capital to
meet these commitments.



The Company's long-term liabilities are $6,540,429 (2003 - $NIL) and the most
significant component is the $6,100,000 future tax liability.



Adulis' shareholders' equity increased from $98,680,852 at December 31, 2004, to
$100,139,770 at March 31, 2005.



SUMMARY OF CASH INFLOWS AND OUTFLOWS



The Company incurred a cash outflow from operations amounting to $339,909 for
the three months ended March 31, 2005, compared to the same period in 2004
amounting to $101,716, primarily as a result of increased general and
administrative expenses incurred in the period.



Adulis' net cash inflow from financing activities amounted to $1,415,000 for the
three month period ended March 31, 2005, compared to $26,000 for the three month
period ended March 31, 2004, from the exercise of share purchase warrants and
stock options.



The Company incurred cash outflows from its investing activities of $5,752,673
for the three month period ended March 31, 2005 as compared to $25,211 for the
three month period ended March 31, 2004.  The most significant cash outflow
component was $8,234,026 of expenditures for petroleum and natural gas
properties.



RELATED PARTY TRANSACTIONS



The Company paid $24,000 in management fees in the current period ended March
31, 2005 (the three month period ended March 31, 2004 - $15,000) to a company
controlled by a director of the Company and are included in general and
administrative expense.




Selected Quarterly Financial Information



The following table sets out selected unaudited quarterly financial information
of Adulis and is derived by unaudited quarterly financial statements prepared by
management. Adulis' interim financial statements are prepared in accordance with
Canadian generally accepted accounting principles and are expressed in Canadian
dollars.



                                      March 31, 2005    December 31, 2004   September 30, 2004    June 30, 2004
                                                   $                    $                    $                $
                                                                          
Additions to Petroleum and
Natural Gas properties                     8,234,026           13,125,680              529,124          117,789

Total revenues                               498,703              557,233                9,123           18,812

General and administrative                   710,131              707,660              337,832           89,547
expenses                                                          

Depletion, depreciation and                  133,883              359,952                    -                -
accretion                                                         

Impairment                                         -            1,160,000                    -                -

Foreign exchange (gain) loss               (547,492)              522,317                    -                -
                                                                  
Stock-based compensation                     604,530            1,102,826                    -                -
                                                                
Loss before and after
extraordinary items and taxes                530,830            3,963,435              328,709           70,735

Loss per share (basic and                       0.01                 0.14                 0.01             0.01
diluted)                                                                                 




                                      March 31, 2004    December 31, 2003   September 30, 2003    June 30, 2003
                                                   $                    $                    $                $
Additions to Petroleum and
Natural gas properties                        25,891            3,317,376                    -           11,528

Total revenues                                15,419                    -                    -                -

General and administrative                   117,135               94,056               16,597           31,570
expenses                                                          

Depletion, depreciation and                        -                    -                    -                -
accretion                                                               

Foreign exchange                                   -                    -                    -                -

Stock-based compensation                      45,900                     -                    -                -

Write-off of mineral properties                    -              383,534                    -                -

Loss before and after
extraordinary items and taxes                147,616              285,213              260,349           31,570

Loss per share (basic and                       0.01                 0.03                 0.03            0.001
diluted)                                                             



OUTLOOK



The Company expects to complete its ten-well exploratory drilling program by
early March 2006.  As of May 2005, the Company had drilled one successful well
and had plugged and abandoned three other exploratory wells.  Through the summer
months of 2005, the Company plans to participate in drilling of four additional
exploratory wells.



CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



March 31, 2005



CONSOLIDATED BALANCE SHEETS

                                  (Unaudited)


Assets
                                                          March 31,                December 31, 2004
                                                               2005
                                                         $                        $
Current:
    Cash and cash equivalents                            50,802,041               55,104,406
    Accounts receivable                                  3,737,717                5,482,997
    Prepaid expenses                                     127,752                  76,292
                                                         54,667,510               60,663,695

Restricted cash                                          900,000                  900,000
Petroleum and natural gas properties                     53,879,052               45,304,339
Other capital assets                                     566,195                  321,113
                                                         110,012,757              107,189,147


Liabilities


Current:
    Bank loans                                           29,879                   100,135
    Accounts payable and accrued liabilities             3,302,679                1,885,132
                                                         3,332,558                1,985,267

    Asset retirement obligations (Note 3)                440,429                  423,028
Future income taxes                                      6,100,000                6,100,000
                                                         9,872,987                8,508,295
Shareholders' equity
   Share capital (Note 4)                                111,672,972              110,257,972
   Contributed surplus                                   1,948,904                1,374,156
   Deficit                                               (13,482,106)             (12,951,276)
                                                         100,139,770              98,680,852
                                                         110,012,757              107,189,147




CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT

                                  (Unaudited)


                                                                   Three months ended March 31,
                                                                  2005                       2004
                                                             $                         $
Revenue:
Oil and gas revenues, net of royalties                       294,700                   -
Interest                                                     204,003                   15,419
                                                             498,703                   15,419
Expenses:
    Operating                                                78,481                    -
    General and administrative                               710,131                   117,135
    Depletion, depreciation and accretion                    133,883                   -
    Foreign exchange gain                                    (547,492)                 -
    Stock compensation expense                               604,530                   45,900
                                                             979,533                   163,035


Loss before taxes                                            (480,830)                 (147,616)

Taxes                                                        50,000                    -

Net loss                                                     (530,830)                 (147,616)

Deficit, beginning of period                                 (12,951,276)              (8,555,907)

Deficit, end of period                                       (13,482,106)              (8,703,523)

Net loss per share, basic and diluted                        (0.01)                    (0.01)




CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (Unaudited)


                                                                 Three months ended March 31,
                                                                  2005                        2004
Summary of activities                                         $                         $
Operating Activities:
    Loss for the period                                       (530,830)                 (147,616)

    Items not involving cash:
    Unrealized foreign exchange gain                          (547,492)                 -
    Stock-based compensation                                  604,530                   45,900
    Depletion, depreciation and accretion                     133,883                   -
                                                              (339,909)                 (101,716)

Change in non-cash working capital                            445,473                   (49,436)
                                                              105,564                   (151,152)

Financing Activities:
    Proceeds from exercise of warrants                        1,355,000                 -
Proceeds from exercise of options                             60,000                    26,000
                                                              1,415,000                 26,000

Investing activities:
Advances to agents                                            -                         (680)
Additions to petroleum and natural gas properties             (8,234,026)               25,891
Change in non-cash working capital                             2,750,403                -
Additions to capital assets                                   (269,050)                 -
                                                              (5,752,673)               (25,211)

Net decrease in cash and cash equivalents                     (4,232,109)               (99,941)

Cash and cash equivalents, beginning of period                55,904,271                3,825,165

Cash and cash equivalents, end of period                      51,671,162                3,725,224
Represented by:
     Cash and cash equivalents                                50,802,041                2,755,924
     Demand loans                                             (29,879)                  -
     Restricted cash                                          900,000                   969,300
                                                              51,672,162                3,725,224





Asset Retirement Obligations



The following table represents the reconciliation of the beginning and ending
obligations associated with the retirement of oil and gas properties:




Asset retirement obligations, December 31, 2004                                        $423,028
Liabilities incurred during period                                                     -
Liabilities settled during period                                                      -
Accretion                                                                              17,401
Asset retirement obligations, March 31, 2005                                           $440,429



At March 31, 2005, the estimated total undiscounted amount required to settle
the asset retirement obligations was $1,269,084 (2004 - NIL).  These obligations
will be settled at the end of the useful lives of the underlying assets, which
currently extend up to 10 years into the future.  This amount has been
discounted using a credit-adjusted risk-free interest rate of 7% and an
inflation rate of 2%.




 Share Capital




Authorized share capital consists of an unlimited number of common shares.


Continuity of common shares                                          Shares              Amount

                                                                        #                    $
Balance, December 31, 2004                                     64,071,766          110,257,972
Share options exercised                                        100,000             60,000
Purchase warrants exercised                                    565,000             1,355,000
Balance, March 31, 2005                                        64,736,766          111,672,972






Continuity of stock options                                          Options        Weighted Average
                                                                                     Exercise Price
                                                                        #
                                                                                             $
Balance, December 31, 2004                                     1,725,000           1.76
Granted                                                        200,000             3.85
Exercised                                                      (100,000)           0.34
Balance, March 31, 2005                                        1,825,000           1.99





Stock-based compensation



Compensation expense of $604,500 has been recorded in the Consolidated
Statements of Loss and Deficit in 2005 (2004 - $45,900).  The fair values of all
common share options granted are estimated on the date of grant using the
Black-Scholes option-pricing model.  The weighted average fair market value of
options granted during the first quarter of 2005 and the assumptions used in
their determination are as noted below:




                                                              Three months ended


                                                                  March 31, 2005
Weighted average fair market value per option (CDN $)                      $3.45
Risk-free interest rate (percent)                                           3.51%
Expected life (years)                                                       5.00
Volatility (percent)                                                         104
Expected annual dividend per share                                             -





Per-share amounts



The weighted average number of common shares, basic and diluted, outstanding
during the three months ended March 31, 2005 was 64,071,766 (2004 - 21,064,099).





Segmented information


                                                   Canada    Colombia                Total

                                                        $           $                    $
Revenue                                                 -     294,700               294,700
Operating costs                                         -     78,481                 78,481


                                                        -     216,219               216,219

General and administrative expenses               255,291     454,840               710,131
Depletion, depreciation, and accretion              1,893     131,990               133,883
Foreign exchange gain                             (93,278)   (454,214)             (547,492)
Stock-based compensation                          604,530           -               604,530
Interest                                         (203,920)        (83)             (204,003)


                                                  564,516     132,533               697,049


(Loss) income before taxes                       (564,516)     83,686              (480,830)


Capital taxes                                      50,000           -                50,000

Net (loss) income                                (614,516)     83,686              (530,830)

Identifiable assets                            58,236,604  51,776,153           110,012,757


Capital expenditures                               25,763   8,477,313             8,503,076




For the three-month period ended March 31, 2004, the Company's operations were
only in Canada, therefore, there is no segmented information presented.





Supplemental cash flow information


                                                                    2005          2004

                                                                       $            $
Cash interest paid                                                 2,455             -

Cash taxes paid                                                    -                 -





Related party transactions



Management fees in the amount of $24,000 (2004 - $15,000) were paid to a company
controlled by a director of the Company and are included in general and
administrative expenses.  These transactions are in the normal course of
operations and are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.





Income Taxes



The Company has losses of approximately $3,575,000 carried forward for tax
purposes.  The financial statements do not reflect the potential tax benefit of
these losses.  These loss carry-forwards expire as follows:


                          $
      2004          433,000
      2005        318,000
      2006        297,000
      2007        304,000
      2008        267,000
      2009        140,000
      2010        230,000
      2011        1,586,000
                  3,575,000





Financial instruments



The Company is exposed to foreign currency fluctuations as it holds United
Stated dollars and Colombian pesos in cash and short-term investments.  There
are no exchange rate contracts in place.



The fair value of the Company's financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable approximate their carrying
values due to their short terms to maturity.



The majority of the accounts receivable are in respect of oil and gas
operations.  The Company generally extends unsecured credit to these customers
and therefore the collection of accounts receivable may be affected by changes
in economic or other conditions.  Management believes the risk is mitigated by
the size and reputation of the companies to which they extend credit.  The
Company has not experienced any material credit loss in the collection of
accounts receivable to date.



The Toronto Stock Exchange has neither approved nor disapproved of the
information contained herein.



Readers are cautioned that the preceding statements and information may include
certain estimates, assumptions and other forward-looking information. The actual
future performance, developments and/or results of the corporation may differ
materially from any or all of the forward-looking statements, which include
current expectations, estimates and projections, in all or part attributable to
general economic conditions and other risks, uncertainties and circumstances
partly or totally outside the control of the corporation, including oil prices,
imprecision of reserve estimates, drilling risks, future production of gas and
oil, rates of inflation, changes in future costs and expenses related to the
activities involving the exploration, development, production and transportation
of oil, hedging, financing availability and other risks related to financial
activities, and environmental and geopolitical risks. Discussion of the various
factors that may affect future results is contained in the corporation's recent
filings with Canadian securities regulatory authorities. The corporation
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.



THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR
FOR DISSEMINATION IN THE UNITED STATES. This news release does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities of the
Corporation in the United States. The securities of the Corporation have not
been and will not be registered under the United States Securities Act of 1933,
as amended (the 'U.S. Securities Act') or any state securities laws and may not
be offered or sold within the United States or to U.S. persons unless registered
under the U.S. Securities Act and applicable state securities laws or an
exemption from such registration is available.



The following financial statements should be read in conjunction with the full
financial statements and accompanying notes as filed on SEDAR, www.sedar.com.
The statements can also be found on the Company's website,
www.adulisresources.com.


                      This information is provided by RNS
            The company news service from the London Stock Exchange                                                                                                                                                                                                                                                 

a d v e r t i s e m e n t