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Adulis Resources Inc (ADS)

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Tuesday 30 August, 2005

Adulis Resources Inc

Interim Results

Adulis Resources Inc.
30 August 2005

                             ADULIS RESOURCES INC.
                          ('Adulis' or 'the Company')


                      FINANCIAL AND OPERATIONAL HIGHLIGHTS
               AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
            FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2005.



Adulis Resources Inc. (TSX-V:ADE; AIM:ADS), the Colombia-focused independent oil
and gas exploration and production company, today announces its interim results
for the six months ending June 30, 2005.



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').

HIGHLIGHTS

  • The consolidated financial information includes the revenue and expense
    for Adulis' wholly owned subsidiary, Solana, for the three month and the six
    month periods ended June 30, 2005. The revenue for the six month period of
    $2,468,976, less operating costs of $841,308, yielded an operating profit of
    $1,627,668.

  • The net loss amounting to $1,077,046 for the six month period ended June
    30, 2005 is a result of the Company's efforts to capture the oil and gas
    exploration and exploitation potential of its acreage in Colombia.

  • The Company has a cash balance at June 30, 2005 amounting to $43,495,867
    and $900,000 in restricted cash. This is committed to the planned capital
    expenditure program in Colombia and the Company expects to have sufficient
    working capital to meet the program commitments.

  • Drilling through the first six months resulted in three dry wells and one
    discovery, which has led to one near-term development location and one
    additional exploratory well location planned for early 2006.

  • Through the remainder of 2005 and 2006, Adulis plans to participate in
    drilling of nine additional exploratory wells and is waiting to complete one
    developmental well. In addition to exploring and developing its existing
    assets the Company is also continuing to evaluate and file new applications
    for additional acreage.

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

'The first six months of the year have proved successful for the Company and I
am proud of our achievements. We have an intensive exploration program in place,
and the news over the coming months will stem from the drill bit, but I am
confident that Adulis' faith in Colombia's potential will prove justified.'

                                                                  August 30 2005

A full Management Discussion and Analysis document is available on SEDAR,
www.sedar.com , and on the Company's website,
www.adulisresources.com.



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
                     Alisdair Haythornthwaite [email protected]       +4402077436676





                                         CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
                                                               (Unaudited)


                                          Note           June 30, 2005                       June 30, 2004
                                                 Three months         Six months     Three months       Six months
                                                        ended              ended            ended            ended
                                                            $                  $                $                $
Revenue
    Oil and gas revenues, net of royalties         2,174,277          2,468,976                -                 -
    Interest                                         207,497            411,500           18,812           34,231
                                                   2,381,774          2,880,476           18,812           34,231
Expenses
    Operating                                        762,828            841,308                -                -
    General and administrative                       893,827          1,603,959           89,547          206,682
    Depletion, depreciation and accretion            496,713            630,595                -                -
    Foreign exchange loss (gain)                     408,500           (138,992)               -                -
    Stock-based compensation(Note 5)                 366,122            970,652                -           45,900
                                                   2,927,990          3,907,522            89,547         252,582

Loss before taxes                                   (546,216)        (1,027,046)         (70,735)        (218,351)
Taxes                                                      -             50,000                -                -

Net loss                                            (546,216)        (1,077,046)         (70,735)        (218,351)

Deficit, beginning of period                     (13,482,106)       (12,951,276)      (8,703,523)      (8,555,907)

Deficit, end of period                           (14,028,322)       (14,028,322)      (8,774,258)      (8,774,258)

Loss per share                                         (0.02)             (0.02)           (0.01)           (0.01)



                                                    CONSOLIDATED BALANCE SHEETS
                                                               (Unaudited)


                                                   Note              June 30, 2005           December 31, 2004
                                                                          $                                  $

                                                                     
ASSETS

Current assets
    Cash and cash equivalents                                           43,495,867                  55,104,406
    Accounts receivable                                                  4,525,873                   5,482,997
    Prepaid expenses                                                       229,039                      76,292
                                                                        48,250,779                  60,663,695

Restricted cash                                                            900,000                     900,000
Petroleum and natural gas properties                                    59,351,493                  45,304,339
Other capital assets                                                       599,250                     321,113
                                                                       109,101,522                 107,189,147

LIABILITIES

Current liabilities
    Bank loans                                                             15,112                     100,135
    Accounts payable and accrued liabilities                            2,607,947                   1,885,132
                                                                        2,623,059                   1,985,267
Asset retirement obligations (Note 3)                                     418,787                     423,028
Future income taxes (Note 4)                                            6,100,000                   6,100,000
                                                                        9,141,846                   8,508,295

SHAREHOLDERS' EQUITY
   Share capital (Note 5)                                             111,672,972                 110,257,972
   Contributed surplus                                                  2,315,026                   1,374,156
   Deficit                                                            (14,028,322)                (12,951,276)
                                                                       99,959,676                  98,680,852
                                                                      109,101,522                 107,189,147




                                                   CONSOLIDATED STATEMENTS OF CASH FLOW
                                                               (Unaudited)


                                                      June 30, 2005                        June 30, 2004
                                             Three months       Six months         Three months       Six months
                                                ended              ended              ended             ended
                                                  $                  $                  $                 $
Summary of activities


Operating activities
    Net loss                                    (546,216)         (1,077,046)           (70,735)        (218,351)
   Items not involving cash:
   Unrealized foreign exchange loss              394,157             (68,826)                  -                -
   Depletion, depreciation and accretion         496,713             630,595                   -                -
   Stock-based compensation                      366,122             970,652                   -          45,900
                                                 710,776             455,375            (70,735)        (172,451)

    Changes in non-cash working capital       (1,568,560)         (1,250,839)            95,338            45,902
                                                (857,784)           (795,464)            24,603         (126,549)

Financing activities
    Proceeds from the exercise of                      -           1,355,000          9,547,170        9,547,170
warrants
    Proceeds from the exercise of                      -              60,000             60,000           86,000
options
                                                       -           1,415,000          9,607,170        9,633,170
Investing activities
    Advances to agent                                  -                    -            (1,086)          (1,766)
    Additions to petroleum and natural
  gas properties                              (6,350,471)        (14,584,496)          (117,789)         (91,898)


    Changes in non-cash working capital          (15,615)          2,778,021                   -                -
    Drilling advances                                  -                    -       (10,768,000)     (10,768,000)
    Additions to capital assets                  (67,537)           (336,587)                  -                -
                                              (6,433,623)        (12,143,062)       (10,886,875)     (10,861,664)

Net decrease in cash                          (7,291,407)        (11,523,526)        (1,255,102)      (1,355,043)

Cash and cash equivalents, beginning of       51,672,162          55,904,271          3,725,224        3,825,165
period
Cash and cash equivalents, end of period      44,380,745          44,380,745          2,470,122        2,470,122

Represented by:
    Cash and cash equivalents                 43,495,867          43,495,867          1,493,822        1,493,822
    Bank loan                                    (15,122)            (15,122)                 -                -
    Restricted cash                              900,000             900,000            976,300          976,300
                                              44,380,745          44,380,745          2,470,122        2,470,122

Notes to the Consolidated Financial Statements



1.         Basis of Presentation

            The interim consolidated financial statements of Adulis Resources
Inc. ('Adulis' or the 'Company') for the three- and six-month periods ended June
30, 2005 and 2004 have been prepared by management in accordance with accounting
principles generally accepted in Canada on the same basis as the audited
consolidated financial statements as at and for the year ended December 31,
2004, except outlined as in Note 2.  These interim consolidated financial
statements, include Adulis' wholly owned subsidiary, Solana Petroleum
Exploration (Colombia) Limited ('Solana'), and should be read in conjunction
with the consolidated financial statements and the notes thereto in Adulis'
annual report for the year ended December 31, 2004.



2.         Changes in Accounting Policies



            Effective January 1, 2005, CICA Accounting Guideline AcG-15 '
Consolidation of Variable interest entity ('VIE') as a legal entity in which
either the total equity at risk is not sufficient to permit the entity to
finance its activities without additional subordinated financial support
provided by other parties or the equity owners lack a controlling financial
interest.  The guideline requires the enterprise which absorbs the majority of
VIE's expected gains or losses, the primary beneficiary, to consolidate the VIE.



            The adoption of AcG-15 had no effect on the Company's financial
position or results of operations.



3.                  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                                   (21,641)
Accretion                                                            17,400
Asset retirement obligations, June 30, 2005                        $418,787



At June 30, 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%.



4.         Future Income Taxes



             At the time of the acquisition of Solana by Adulis, in December
2004 for 12,000,000 common shares at a deemed price of $ 2.00 per common share,
it was determined that Solana had approximately $ 3,000,000 US in tax deductions
available, in Colombia, to shield any potential future Colombian income tax
liability that might arise in Colombia, S.A. Accordingly, a future income tax
liability amounting to $ 6,100,000 was recorded.




5.         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, June 30, 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 and June 30, 2005                                1,825,000                1.99


 Stock-based compensation


Compensation expense of $366,122 for the three-month period and $970,652 for the
six-month period ended June 30, 2005 has been recorded in the Consolidated
Statements of Loss and Deficit (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 during
the second quarter of 2005 and the assumptions used in their determination are
as noted below:


                                                                            Six months ended 30 June
                                                                                                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)                                                                            100%
Expected annual dividend per share                                                               -



6.         Per-share amounts


            The weighted average number of common shares, basic and diluted,
outstanding during the six months ended June 30, 2005 was 64,071,766 (2004 -
26,640,766).



7.         Segmented information

            Three-month period ended June 30, 2005
                                                       Canada              Colombia              Total
                                                            $                    $                   $
Revenue                                                    -             2,174,277          2,174,277
Operating costs                                            -               762,828            762,828


                                                           -             1,411,449          1,411,449

General and administrative expenses                  579,304               314,523            893,827
Depletion, depreciation, and accretion                 1,893               494,820            496,713
Foreign exchange loss                                179,061               229,439            408,500
Stock-based compensation                             366,122                 -                366,122
Interest income                                     (207,205)                 (292)          (207,497)

                                                     919,715             1,038,490          1,957,665

(Loss) income before taxes                          (919,715)              372,959           (546,216)

Capital taxes                                         -                       -                -

Net (loss) income                                   (919,715)              372,959           (546,216)

Identifiable assets                               51,110,611            57,990,911        109,101,522


Capital expenditures                                   -                 6,418,008          6,418,008




Segmented information
Six-month period ended June 30, 2005
                                                       Canada              Colombia              Total
                                                            $                    $                   $
Revenue                                                    -             2,468,976          2,468,976
Operating costs                                            -               841,308            841,308


                                                           -             1,627,668          1,627,668

General and administrative expenses                  834,595               769,364          1,603,959
Depletion, depreciation, and accretion                 3,786               626,809            630,595
Foreign exchange loss                                 85,783              (224,775)          (138,992)
Stock-based compensation                             970,652                 -                970,652
Interest income                                     (411,125)                 (375)          (411,500)

                                                   1,483,691             1,171,023          2,654,714


(Loss) income before income taxes                 (1,483,691)              456,645         (1,027,046)

Capital taxes                                         50,000                 -                 50,000

Net (loss) income                                 (1,533,691)              456,645         (1,077,046)

Identifiable assets                               51,110,611            57,990,911        109,101,522

Capital expenditures                                  25,763            14,895,320         14,921,083




For the three-month and six-month periods ended June 30, 2004, the
Company's operations were only in Canada, therefore, there is no segmented
information presented.



8.         Supplemental cash flow information


                                              June 30, 2005                  June 30, 2004
                                                    $                              $
                                        Three Months    Six Months    Three Months    Six Months


Cash interest paid                               2,857         5,312        -              -

Cash taxes paid                                   -           -             -              -



9.         Related party transactions



            Management fees in the amount of $48,000 (2004 - $30,000) 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.



10.       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




11.       Financial instruments



   The Company is exposed to foreign currency fluctuations as it holds
United States 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.




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

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