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FOR: NUVISTA ENERGY LTD.

TSX SYMBOL: NVA - |  View Quote |  View Chart |  View Financials | 

NuVista Energy Ltd.: Announcing 2005 Year End Results

Feb 23, 2006 - 19:57 ET

CALGARY, ALBERTA--(CCNMatthews - Feb. 23, 2006) - NuVista Energy Ltd. (TSX:NVA) is pleased to announce its financial and operating results for the three months and year ended December 31, 2005 as follows:



Corporate Highlights

------------------------------------------------------------------------
Three Months ended Year ended
December 31, % December 31, %
2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------

Financial
($ thousands, except per share)

Production revenue 63,315 24,601 157 169,680 79,398 114
Funds from
operations (1) 39,258 15,222 158 104,881 49,871 110
Per share - basic 0.81 0.38 113 2.40 1.29 86
Per share - diluted 0.78 0.36 117 2.31 1.25 85

Net income 16,247 5,715 184 39,506 18,322 116
Per share - basic 0.34 0.14 143 0.90 0.47 91
Per share - diluted 0.32 0.14 129 0.87 0.46 89

Total assets 432,432 173,531 149

Bank loan, net of
working capital 69,903 33,805 107

Shareholders' equity 255,604 115,110 122

Net capital
expenditures 15,259 13,823 10 238,506 89,686 166

Weighted average
common shares
outstanding
(thousands):
Basic 48,351 40,559 19 43,765 38,725 13
Diluted 50,055 41,826 20 45,389 39,897 14
------------------------------------------------------------------------

Operating
(boe conversion
- 6:1 basis)

Production:
Natural gas
(mmcf/day) 52.0 31.2 67 40.5 25.3 60
Oil and liquids
(bbls/day) 2,365 1,511 57 2,281 1,338 70
Total oil equivalent
(boe/day) 11,031 6,703 65 9,024 5,550 63

Product prices: (2)
Natural gas ($/mcf) 11.35 6.97 63 9.02 6.72 34
Oil and liquids ($/bbl) 41.39 33.29 24 43.85 35.29 24

Operating expenses:
Natural gas ($/mcf) 0.74 0.73 1 0.72 0.69 4
Oil and liquids ($/bbl) 7.24 4.19 73 7.22 4.04 79
Total oil equivalent
($/boe) 5.04 4.34 16 5.07 4.13 23

General and
administrative
expenses ($/boe) 0.71 0.53 34 0.55 0.41 34

Cash costs ($/boe) 6.74 5.66 19 6.50 5.02 29

Funds from operations
netback ($/boe) 38.68 24.69 57 31.84 24.55 30

------------------------------------------------------------------------

December 31, %
2005 2004 Change
------------------------------------------------------------------------
Undeveloped land:
Gross acres 524,776 345,428 52
Net acres 427,536 310,796 38
Average working interest 81% 90% (9)

Reserves (NI 51 - 101)
- December 31, 2005
Proved and probable:
Natural gas (bcf) 128.3 64.9 98
Oil and liquids (mbbls) 5,564 3,580 55
Total barrels of oil
equivalent (mboe) 26,953 14,388 87
% of Reserves Proved
Producing 72% 68% 4
% of Reserves Total
Proved 78% 78% -
% of Reserves Probable 22% 22% -
Net present value of
future cash flows before
tax ($millions):
@ 5% discount rate 585.6 249.7 135
@ 10% discount rate 486.8 209.1 133

Finding and development
costs ($/boe): (3)
Total proved 18.17 16.70 9
Proved plus probable 15.07 14.38 5

Recycle ratio (cash flow
net back per boe/finding
and development costs
per boe):
Total proved 1.8 1.5 20
Proved plus probable 2.1 1.7 24

Reserve life index:
Proved 5.4 4.8 13
Proved plus probable 6.5 5.7 14
------------------------------------------------------------------------
------------------------------------------------------------------------

NOTES:

(1) Management uses funds from operations to analyze operating
performance and leverage. Funds from operations as presented does
not have any standardized meaning prescribed by Canadian GAAP and
therefore it may not be comparable with the calculations of similar
measures for other entities. Funds from operations as presented is
not intended to represent operating cash flow or operating profits
for the period nor should it be viewed as an alternative to cash
flow from operating activities, net income or other measures of
financial performance calculated in accordance with Canadian GAAP.
All references to funds from operations throughout this report are
based on cash flow from operating activities before changes in
non-cash working capital and abandonments expenditures.

(2) Product prices are before transportation costs.

(3) Includes changes in future capital expenditures.

 


MESSAGE TO SHAREHOLDERS

NuVista Energy Ltd. ("NuVista") is pleased to report to shareholders its financial and operating results for the three months and year ended December 31, 2005. NuVista has now completed two and one half years of operations and the Board of Directors and management are very pleased with the results, accomplishments and corresponding value created for our shareholders. The results of the fourth quarter of 2005 represent the tenth consecutive quarter of continuous profitable growth for NuVista since its creation on July 2, 2003, through the Plan of Arrangement involving Bonavista Petroleum Ltd. and Bonavista Energy Trust (collectively "Bonavista").

On August 4, 2005 NuVista announced the closing of a transaction to acquire certain natural gas assets in Northwest Saskatchewan for approximately $150 million. Upon completion of the transaction, NuVista acquired 20.4 mmcf/d of natural gas production, 78,500 net acres of undeveloped land and 61 bcf of proved and probable reserves, establishing a new core region for NuVista, Northwest Saskatchewan. The establishment of our Northwest Saskatchewan Core Region has left NuVista with over 50 additional drilling and 30 recompletion opportunities on this property, a program which is being initiated in the first quarter of 2006. This acquisition was funded through the issuance of 7.5 million common shares, at a price of $13.60/share, for gross proceeds of $102 million and an increase in NuVista's bank facility from $80 million to $130 million. The equity issue completed as part of the financing of the acquisition and expanded bank facility provides NuVista with significant financial flexibility and a 2005 exit debt to funds from operations ratio of approximately 0.4:1.

Other significant highlights for NuVista in 2005 include:

- Increased employee count to 25 office and 13 field staff, establishing dedicated technical teams in each of NuVista's four core areas;

- Increased year over year production by 63% to 9,024 boe/d, from 5,550 boe/d in 2004. NuVista's current production level is approximately 11,400 boe/d consisting of 54.5 mmcf/d of natural gas and 2,310 bbls/d of oil and liquids. NuVista's current natural gas weighting has increased to 80% of total production;

- Increased undeveloped land to approximately 428,000 net acres, providing NuVista with over 200 near ready drilling prospects, the largest inventory in our history;

- Acquired over 7,800 kilometers of 2D and 90 square kilometers of 3D seismic to further enhance the prospectivity of NuVista's undeveloped land;

- Completed a capital expenditure program in 2005 of $238.5 million with approximately 75% of this being allocated to acquisitions, strengthening NuVista's existing core areas and establishing a new core area, Northwest Saskatchewan. In addition, NuVista participated in 106 (82 net) wells to date, with an overall success rate of 86%;

- Installed two new operated production facilities in our Oyen Area and a NuVista operated processing facility in Provost; and

- Continued focus on cost control resulting in cash costs of $6.50/boe for the year ended December 31, 2005.

For 2006, NuVista has set a capital program of between $175 to $190 million. This program is split relatively equal between acquisitions and exploration and development activities. NuVista currently has identified over 200 drilling prospects, with approximately 40 wells planned for the first quarter of 2006. We are continuing to add to our prospect inventory on a weekly basis and plan to participate in over 150 wells in 2006.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis ("MD&A") of financial conditions and results of operations should be read in conjunction with the interim consolidated financial statements for the three months and year ended December 31, 2005 and NuVista's audited consolidated financial statements and MD&A for the year ended December 31, 2004. Our audited consolidated financial statements, current annual information form and other disclosure documents are filed on SEDAR at www.sedar.com, and other corporate documentation can be obtained from our website at www.nuvistaenergy.com.

Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel of oil equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated.

Forward-Looking Statements - Certain information set forth in this document, including management's assessment of NuVista's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond NuVista's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management and services, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. NuVista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits that NuVista will derive therefrom. NuVista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measurements - Within Management's discussion and analysis, references are made to terms commonly used in the oil and gas industry. Management uses funds from operations to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with Canadian GAAP. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital and abandonment expenditures. Funds from operations per share is calculated based on the weighted average number of common shares outstanding consistent with the calculation of net income per share. Netbacks equal total revenue less royalties and operating costs calculated on a boe basis. Total boe is calculated by multiplying the daily production by the number of days in the period. Management uses these terms to analyze operating performance and leverage.

Operating activities - During the fourth quarter of 2005, NuVista participated in 30 wells with an average working interest of 79% and operated 26 of these wells. The success rate of 77% in this drilling program resulted in 20 natural gas wells and three oil wells. NuVista continues to actively drill in its core regions, with 40 wells planned for the first quarter of 2006. For the year ended December 31, 2005, NuVista drilled 106 (82 net) wells, operating 92 of them, resulting in 75 natural gas wells, 16 oil wells and 15 dry holes. With the start up of NuVista's Provost facility in August 2005, the Pembina Core Region is now the only area where the majority of NuVista's production is dependant upon third party facilities. NuVista has commenced its 2006 first quarter drilling program, participating in 19 wells thus far with an 84% success rate, and is currently drilling in Northwest Saskatchewan.

Reserves - NuVista's year end 2005 proved reserves amounted to 21.0 mmboe or an 88% increase over the closing balance at year end 2004. NuVista's proved and probable reserves climbed by 87% to 27.0 mmboes when compared to the equivalent opening balance of 14.4 mmboe at year end 2004. Finding and development costs in 2005, including an adjustment for future capital and after revisions, amounted to $18.17 per barrel of oil equivalent on a proved basis and $15.07 per barrel of oil equivalent on a proved and probable basis. The capital program for 2005 resulted in a recycle ratio of 1.8:1 on a proved basis and 2.1:1 on a proved plus probable basis. NuVista increased its reserve life index at December 31, 2005 to 5.4 years on proved reserves and 6.5 years on proved plus probable reserves from 4.8 years and 5.7 years respectively at December 31, 2004.

Positive proved reserve revisions totaled 29 mboe, or approximately 0.3% of the opening proved reserve balance. On a proved and probable basis, a slight negative revision of 301 mboe, a 2.1% decrease, was realized when compared to the December 31, 2004 proved plus probable reserve balance. All of NuVista's reserves as at December 31, 2005, were evaluated by NuVista's independent engineering consultants, Gilbert Laustsen Jung Associates Ltd.

Additional reserve disclosure tables, as required under NI 51-101, will be contained in the Annual Information Form to be filed on SEDAR on or before March 31, 2006. The reserve estimates contained in the following table are NuVista's working interest reserves before the deduction of royalties:



------------------------------------------------------------------------

Oil and Natural Total Oil
Natural Gas Gas Liquids Equivalent
------------------------------------------------------------------------
(bcf) (mbbls) (mboe)
Proved:
December 31, 2004 49.2 2,952 11,154
Exploration and development 10.9 175 1,986
Revisions (0.5) 114 29
Acquisitions 54.9 2,001 11,151
Dispositions - - -
Production (14.8) (833) (3,294)
------------------------------------------------------------------------

December 31, 2005 (1) 99.7 4,410 21,025
------------------------------------------------------------------------
------------------------------------------------------------------------

Proved and Probable:
December 31, 2004 64.9 3,580 14,388
Exploration and development 15.0 371 2,884
Revisions (1.6) (28) (301)
Acquisitions 64.8 2,474 13,276
Dispositions - - -
Production (14.8) (833) (3,294)
------------------------------------------------------------------------

December 31, 2005 (1) 128.3 5,564 26,953
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Numbers may not add due to rounding.

 


Production - For the fourth quarter of 2005, NuVista's average production was 11,031 boe/d, comprised of 52.0 mmcf/d of natural gas and 2,365 bbls/d of oil and liquids, which represents a 65% increase over the same period in 2004. For the year ended December 31, 2005 NuVista's average production was 9,024 boe/d, comprised of 40.5 mmcf/d of natural gas and 2,281 bbls/d of oil and liquids, which represents a 63% increase over the same period in 2004. Primarily as a result of weather delays in the fourth quarter of 2005 and first quarter of 2006, planned drilling in Northwest Saskatchewan has been delayed to February 2006. This delay resulted in 200 boe/d of our 2005 exit volumes being deferred.

Revenues - Revenues, before transportation costs, for the three months ended December 31, 2005 were $63.3 million, a 157% increase from $24.6 million for the three months ended December 31, 2004. For the year ended December 31, 2005, revenues, before transportation costs were $169.7 million, a 114% increase from $79.4 million, for the same period in 2004. These revenues were comprised of $133.2 million of natural gas and $36.5 million of oil and liquids. The increase in revenues for the year ended December 31, 2005 versus the same period of 2004 results directly from a 63% increase in production and a 32% increase in commodity prices. The increase in commodity prices is made up of a 34% increase in the natural gas price to $9.02/mcf from $6.72/mcf and a 24% increase in the oil and liquids price to $43.85/bbl from $35.29/bbl.

Commodity hedging - As part of our financial management strategy, NuVista has adopted a disciplined commodity-hedging program. The purpose of the hedging program is to reduce volatility in the financial results, protect acquisition economics and stabilize cash flow against the unpredictable commodity price environment. In the third quarter of 2005, NuVista's Board of Directors approved an increase of the hedging limit to 60% from the previous 50% of forecast production, net of royalties, primarily using costless collars. This increase will allow NuVista to further stabilize its cash flow in this period of elevated commodity prices. Our strategy limits NuVista's exposure to downturns in commodity prices while allowing for participation in commodity price increases. In the fourth quarter of 2005, our hedging program resulted in a loss of $994,000 and for the year ended December 31, 2005, a net loss of $1.7 million was experienced due to the stronger than expected commodity prices realized throughout the period. A summary of hedging contracts in place as at December 31, 2005 is included in note 5 of the Notes to the Interim Consolidated Financial Statements.

Royalties - Royalties for the three months ended December 31, 2005 were $16.3 million, an increase of 203% over the $5.4 million reported for the three months ended December 31, 2004. The increase in royalties directly results from higher revenues in the fourth quarter of 2005 versus the same period in 2004. As a percentage of revenue, the average royalty rate for the fourth quarter of 2005 was 25.8% compared to 21.9% for the comparative period of 2004. Royalty rates by product for the fourth quarter of 2005 were 27.4% for natural gas and 16.3% for oil and liquids versus 22.8% for natural gas and 18.2% for oil and liquids for the similar period in 2004. The increase in the natural gas royalty rates results from higher natural gas prices, higher royalty rates on the Northwest Saskatchewan properties and increased production levels in the fourth quarter of 2005. Royalties of $40.3 million for the year ended December 31, 2005 were 128% higher than the $17.7 million for the same period of 2004. The increase in royalties for the year ended December 31, 2005 resulted from higher revenues compared to the same period of 2004, generated by a 63% increase in production volumes and a 32% increase in commodity prices. Royalty rates by product for the year ended December 31, 2005 were 25.5% for natural gas and 17.4% for oil and liquids versus 23.8% for natural gas and 16.7% for oil and liquids for the same period in 2004.

Transportation - Transportation costs were $895,000 ($0.88/boe) for the three months ended December 31, 2005 as compared to $496,000 ($0.80/boe) for the fourth quarter of 2004. For the year ended December 31, 2005, transportation costs were $3.1 million ($0.93/boe) as compared to $1.6 million ($0.80/boe) for the same period in 2004. The increase in transportation costs is a result of a 63% increase in production volumes, offset by lower overall per unit costs associated with the natural gas acquisition completed in the third quarter of 2005. This acquisition increased NuVista's weighting towards natural gas in 2005 as compared to it's overall production mix in 2004.

Operating - Operating expenses were $5.1 million ($5.04/boe) for the three months ended December 31, 2005, a 91% increase when compared to $2.7 million ($4.34/boe) for the three months ended December 31, 2004. This increase resulted from the higher production volumes and a 16% increase in per unit costs in the fourth quarter of 2005 versus the fourth quarter of 2004. The increase in per unit costs resulted from higher per unit costs of the oil production from the acquisition completed in the first quarter of 2005. Operating expenses were $16.7 million for the year ended December 31, 2005 versus $8.4 million for the same period in 2004, an increase of 99%. This increase resulted primarily due to the higher production volumes, increased per unit oil operating costs associated with the first quarter of 2005 acquisition and a slight increase in per unit natural gas operating costs. For the year ended, December 31, 2005, natural gas operating expenses averaged $0.72/mcf and oil and liquids operating expenses were $7.22/bbl as compared to $0.69/mcf and $4.04/bbl respectively for the same period of 2004. On a boe basis, operating costs increased 23% to $5.07/boe for the year ended December 31, 2005 as compared to $4.13/boe for the same period of 2004, also primarily due to higher per unit costs of the oil assets acquired in the first quarter of 2005 and increasing cost pressures facing the entire industry. Despite these increases, NuVista remains in the top decile for oil and natural gas companies in its peer group. NuVista's overall cash costs are forecasted to increase in 2006 due to rising cost pressures in the Canadian oil and natural gas industry, however, forecasted cash costs of $7.40/boe for 2006 should ensure NuVista remains in the top decile of its peer group.

General and administrative - General and administrative expenses were $721,000 ($0.71/boe) net of overhead recoveries, as compared to the charge of $326,000 ($0.53/boe) for the three months ended December 31, 2004. This increase in per unit costs in the fourth quarter over the year to date trend results from the accrual of the year end bonuses. General and administrative expenses, net of overhead recoveries for the year ended December 31, 2005 were $1.8 million ($0.55/boe), an increase of 119% over the $834,000 ($0.41/boe) for the year ended December 31, 2004. This increase is directly attributable to the higher production base in NuVista, hiring of NuVista's own core area teams, higher employee costs experienced throughout the energy industry and the allocation of higher per unit overhead costs from Bonavista, in accordance with the Technical Services Agreement (the "TSA"). For the year ended December 31, 2005, Bonavista charged $1.7 million, as compared to $1.3 million in 2004, to NuVista for general and administrative services under the TSA. The TSA, entered into as part of the Plan of Arrangement, has allowed NuVista to initiate and continue with its successful and active capital programs, through the use of Bonavista's personnel in managing its operations and at the same time taking advantage of Bonavista's low overhead cost structure. NuVista recorded a stock-based compensation charge of $1.5 million for the year ended December 31, 2005 versus $1.0 million for the same period in 2004 calculated on both the Class B Performance Shares and stock options.

Interest - For the three months ended December 31, 2005, interest expense was $834,000 ($0.82/boe), up 242% from $244,000 ($0.40/boe) in the same period of 2004, due to higher average debt levels in 2005 in connection with the northwest Saskatchewan property acquisition. Interest expense for the year ended December 31, 2005 was $2.2 million ($0.68/boe) versus $574,000 ($0.28/boe) for the same period of 2004 due to higher average debt levels. Cash paid for interest for the year ended December 31, 2005 was $2.2 million. Currently, NuVista's borrowing rate is 4.5%, which has increased from the November 2005 borrowing rate of 3.75%.

Depreciation, depletion and accretion - Depreciation, depletion and accretion expenses were $13.2 million for the fourth quarter of 2005 compared to $6.3 million for the same period in 2004, an increase of 108%. The average cost per unit was $12.98/boe in the fourth quarter of 2005 versus $10.28/boe for the same period in 2004. Depreciation, depletion and accretion expenses for the year ended December 31, 2005 were $40.4 million, an increase of 105% over the $19.7 million for the year ended December 31, 2004. The average cost per unit was $12.27/boe for the twelve months ended December 31, 2005 versus $9.71/boe in the same period in 2004, due to higher costs of adding reserves, which is a trend being experienced throughout the industry.

Income and other taxes - For the fourth quarter of 2005, the provision for income and other taxes was $9.6 million for an effective tax rate of 37.2%, as compared to $3.1 million with an effective tax rate of 35.2% for the fourth quarter of 2004. The increase in the effective tax rate results from a higher Large Corporation Tax provision. For the year ended December 31, 2005, the provision for income and other taxes was $24.1 million for an effective tax rate of 37.9%, as compared to $11.2 million for an effective tax rate of 37.9% for the same period in 2004. Cash paid for income and other taxes for the year ended December 31, 2005 was $369,000.

Capital expenditures - Capital expenditures were $15.3 million during the fourth quarter of 2005 all allocated to exploration and development. Capital expenditures were $238.5 million for the year ended December 31, 2005 consisting of exploration and development spending of $65.9 million and $172.6 million of acquisitions, compared to $89.7 million incurred for the twelve months ended December 31, 2004 with approximately $49.5 million spent on acquisitions.

Funds from operations and net income - In the fourth quarter of 2005, funds from operations were $39.3 million ($0.81/share, basic), a 158% increase over the $15.2 million ($0.38/share, basic) for the same period in 2004. For the year ended December 31, 2005, NuVista's funds from operations were $104.9 million ($2.40/share, basic), a 110% increase from $49.9 million ($1.29/share, basic) for the year ended December 31, 2004. Net income also increased 184% during the fourth quarter of 2005 to $16.3 million ($0.34/share, basic) from the $5.7 million ($0.14/share, basic) for the same period in 2004. For the year ended December 31, 2005 net income increased 116% to $39.5 million ($0.90/share, basic) from $18.3 million ($0.47/share, basic) for the same period in 2004.

Liquidity and capital resources - As at December 31, 2005, bank debt (including working capital) was $69.9 million, resulting in a debt to annualized fourth quarter funds from operations ratio of approximately 0.4 to 1. NuVista has approximately $60.1 million of unused bank borrowing capability based on the current line of credit of $130 million, which provides substantial flexibility to fund expanded capital programs into the future. As at February 23, 2005, there were 48,426,596 common shares and 559,630 Class B Performance Shares outstanding. In addition, there were 2,708,137 stock options outstanding, with an average exercise price of $10.09/share.

Quarterly financial information - The following table highlights NuVista's performance for the eight quarterly reporting periods from March 31, 2004 to December 31, 2005:



------------------------------------------------------------------------
2005
-----------------------------------------
December September June March
31 30 30 31
------------------------------------------------------------------------

Production (boe/d) 11,031 9,874 7,783 7,358

(thousands, except per
share amounts)

Production revenue $ 63,315 $ 48,474 $ 30,626 $ 27,265
Net income 16,247 11,339 6,335 5,585
Basic 0.34 0.25 0.16 0.14
Diluted 0.32 0.24 0.15 0.13
------------------------------------------------------------------------


------------------------------------------------------------------------
2004
-----------------------------------------
December September June March
31 30 30 31
------------------------------------------------------------------------

Production (boe/d) 6,703 6,113 4,712 4,651

(thousands, except per
share amounts)

Production revenue $ 24,601 $ 22,020 $ 16,982 $ 15,795

Net income 5,715 4,335 4,540 3,732
Basic 0.14 0.11 0.12 0.10
Diluted 0.14 0.11 0.12 0.10
------------------------------------------------------------------------

 


NuVista has seen dramatic growth in its production, revenues and net income over the past eight quarters. Coupled with stronger commodity prices, revenues have increased 301% and net income has increased 335% over this time period.

BUSINESS RISKS AND OUTLOOK

NuVista's management remains committed to the same principles and disciplined growth strategy that has led to considerable success over its first two and one half years. In 2005, NuVista increased its employee base with the establishment of separate technical teams in each of our Core Areas and completed two significant acquisitions, which strengthened our core regions and our inventory of drilling opportunities. With an undeveloped land base of 428,000 net acres, the largest drilling inventory in our history and significant financial flexibility, NuVista is well positioned to continue posting strong operational and financial results for 2006 and beyond.

For 2006, NuVista's Board of Directors have approved a capital program between $175 and $190 million, which will result in the drilling of 140 to 160 wells. With the lack of cold weather experienced in Northwest Saskatchewan, NuVista expects to see a portion of its 2006 first quarter drilling program deferred to the second quarter. While 2006 exit volumes remain on track, this weather delay and adjusting the timing of expected acquisitions until later in the year should result in average production rates between 12,400 boe/d and 13,000 boe/d for 2006. Based on commodity price estimates of US$8.50/mmbtu for natural gas and US$60.00/bbl WTI for oil, NuVista expects cash flow in the range of $130 million to $140 million ($2.70/share to $2.90/share).

Notwithstanding cost pressures facing the industry from both a reserve finding, operating and general and administrative cost perspective, NuVista will continue to focus on its core strategy of cost control and applying the expertise of its own technical staff to its current operating regions, through both the drill bit and strategic acquisitions. The execution of these strategies will enable NuVista to continue to grow its production, cash flow and net income consistently and profitably. Furthermore, our solid financial position will enable us to continue execution of our capital programs and remain positioned to pursue additional strategic opportunities as they arise. We remain unwavering in our commitment to enhance shareholder value over the long-term by accessing the broad depth and expertise of our team in a diligent and prudent manner.



Consolidated Balance Sheets
(thousands) December 31, December 31,
2005 2004
------------------------------------------------------------------------
------------------------------------------------------------------------

Assets
Current assets:
Accounts receivable $ 18,844 $ 12,071
Oil and natural gas properties and equipment 359,149 152,021
Goodwill 54,439 9,439
------------------------------------------------------------------------
$ 432,432 $ 173,531
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 18,223 $ 17,524

Bank loan (note 3) 70,524 28,352
Asset retirement obligations (note 2) 14,790 5,990
Future income taxes 73,291 6,555

Shareholders' equity:
Share capital (note 4) 189,831 89,876
Contributed surplus (note 4) 2,321 1,288
Retained earnings 63,452 23,946
------------------------------------------------------------------------
255,604 115,110
------------------------------------------------------------------------
$ 432,432 $ 173,531
------------------------------------------------------------------------
------------------------------------------------------------------------


Consolidated Statements of Operations and Retained Earnings

(thousands, Three Months Year
except per share amounts) ended ended
December 31, December 31,
2005 2004 2005 2004
------------------------------------------------------------------------
------------------------------------------------------------------------

Revenues:
Production $ 63,315 $ 24,601 $ 169,680 $ 79,398
Royalties,
net of Alberta Royalty Tax Credit (16,326) (5,391) (40,331) (17,701)
Transportation costs (895) (496) (3,064) (1,630)
------------------------------------------------------------------------
46,094 18,714 126,285 60,067
------------------------------------------------------------------------
Expenses:

Operating 5,111 2,677 16,696 8,392
General and administrative 721 326 1,823 834
Interest 834 244 2,231 574
Stock-based compensation 389 302 1,516 1,035
Depreciation, depletion and
accretion 13,168 6,339 40,411 19,727
------------------------------------------------------------------------
20,223 9,888 62,677 30,562
------------------------------------------------------------------------
Income before income and other
taxes 25,871 8,826 63,608 29,505
Income and other taxes 9,624 3,111 24,102 11,183
------------------------------------------------------------------------
Net income 16,247 5,715 39,506 18,322
Retained earnings,
beginning of period 47,205 18,231 23,946 5,624
------------------------------------------------------------------------
Retained earnings, end of period $ 63,452 $ 23,946 $ 63,452 $ 23,946
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income per share - basic $ 0.34 $ 0.14 $ 0.90 $ 0.47
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income per share - diluted $ 0.32 $ 0.14 $ 0.87 $ 0.46
------------------------------------------------------------------------
------------------------------------------------------------------------

Consolidated Statements of Cash Flows

(thousands) Three Months Year
ended ended
December 31, December 31,
2005 2004 2005 2004
------------------------------------------------------------------------
------------------------------------------------------------------------
Cash provided by (used in):

Operating Activities:
Net income $ 16,247 $ 5,715 $ 39,506 $ 18,322
Items not requiring cash from
operations:
Depreciation, depletion and
accretion 13,168 6,339 40,411 19,727
Stock-based compensation 389 302 1,516 1,035
Future income taxes 9,454 2,866 23,448 10,787
Asset retirement expenditures - (112) (233) (131)
Decrease (Increase) in non-cash
working capital items 188 (366) (2,929) (6,801)
------------------------------------------------------------------------

39,446 14,744 101,719 42,939
------------------------------------------------------------------------

Financing Activities:
Issue (Repurchase) of share capital 99 13 97,760 (24)
Increase (Decrease) in bank loan (22,365) (4,952) 42,172 21,424
------------------------------------------------------------------------

(22,266) (4,939) 139,932 21,400
------------------------------------------------------------------------

Investing Activities:
Business acquisition - - (150,716) (22,882)
Oil and natural gas properties and
equipment additions (15,831) (13,823) (88,362) (45,368)
Proceeds on disposal of oil and
natural gas properties and
equipment 572 - 572 102
Decrease (Increase) in non-cash
working capital items (1,921) 4,018 (3,145) 3,809
------------------------------------------------------------------------

(17,180) (9,805) (241,651) (64,339)
------------------------------------------------------------------------

Decrease in cash - - - -
Cash, beginning of period - - - -
------------------------------------------------------------------------
Cash, end of period $ - $ - $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------


NUVISTA ENERGY LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2005.

 


The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), using the same accounting policies as those set out in note 1 to the consolidated financial statements for the year ended December 31, 2004. The interim consolidated financial statements for the three months and year ended December 31, 2005 are incremental to the consolidated financial statements for the year ended December 31, 2004 and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2004. Certain amounts have been reclassified to conform with the current year's presentation.

1. Acquisition of Northwest Saskatchewan Properties:

On August 4, 2005, NuVista completed the acquisition of certain natural gas weighted properties in northwest Saskatchewan for a total purchase price of approximately $150.7 million. The purchase price is estimated by management based on currently available information. Amendments may be made to the purchase equation as the cost estimates and tax balances are finalized. NuVista purchased these properties through a series of transactions, with the assets being acquired in an existing partnership, owned approximately 76% by NuVista and 24% by Bonavista Petroleum. The acquisition has been accounted for using the purchase method, with results of operations included from the date of acquisition. The purchase equation, which reflects the NuVista portion of the acquisition, is as follows:



------------------------------------------------------------------------
Amount
------------------------------------------------------------------------
(thousands)

Net assets acquired:
Oil and natural gas properties $ 153,635
Goodwill 45,000
Asset retirement obligations (2,919)
Future income taxes (45,000)
------------------------------------------------------------------------

Net assets acquired $ 150,716
------------------------------------------------------------------------
------------------------------------------------------------------------
Purchase consideration:

Cash 150,716
------------------------------------------------------------------------

Total purchase consideration $ 150,716
------------------------------------------------------------------------
------------------------------------------------------------------------

2. Asset retirement obligations:

A reconciliation of the asset retirement obligations is provided below:

------------------------------------------------------------------------
Year
ended
December 31,
2005 2004
------------------------------------------------------------------------
(thousands)
Balance, beginning of year $ 5,990 $ 3,027

Accretion expense 767 295
Liabilities incurred 2,795 1,808
Liabilities acquired 4,271 991
Liabilities settled (233) (131)
Changes in assumed inflation rate 1,200 -
------------------------------------------------------------------------

Balance, end of year $ 14,790 $ 5,990
------------------------------------------------------------------------
------------------------------------------------------------------------

 


3. Bank loan:

In August 2005, NuVista and its lenders agreed to amend the Company's bank loan facility to increase the maximum borrowing to $130 million. All other terms and conditions of the bank loan facility remain unchanged.

4. Share capital:

(a) Authorized:

Unlimited number of voting Common Shares and 1,200,000 Class B Performance Shares.



(b) Issued:

(i) Common Shares:
------------------------------------------------------------------------
Number Amount
------------------------------------------------------------------------
(thousands)

Balance, December 31, 2004 40,559 $ 89,867

Issued for cash 7,500 102,109
Conversion of Class B Performance Shares 249 3
Exercise of stock options 68 449
Stock-based compensation - 483
Reacquired and cancelled (16) (34)
Cost associated with shares issued,
net of future tax benefit - (3,052)
------------------------------------------------------------------------
Balance, December 31, 2005 48,360 $ 189,825
------------------------------------------------------------------------
------------------------------------------------------------------------


(ii) Class B Performance Shares:
------------------------------------------------------------------------
Number Amount
------------------------------------------------------------------------
(thousands)

Balance, December 31, 2004 884 $ 9

Converted to Common Shares (292) (3)
Reacquired and cancelled (32) -
------------------------------------------------------------------------

Balance, December 31, 2005 560 $ 6
------------------------------------------------------------------------
------------------------------------------------------------------------

(c) Contributed Surplus:

------------------------------------------------------------------------
Amount
------------------------------------------------------------------------
(thousands)

Balance, December 31, 2004 $ 1,288

Stock-based compensation 1,516
Conversion of Class B Performance shares and exercise
of stock options (483)
------------------------------------------------------------------------

Balance, December 31, 2005 $ 2,321
------------------------------------------------------------------------
------------------------------------------------------------------------

 


(d) Stock options and stock-based compensation:

For the year ended December 31, 2005, there were 833,000 options granted with an average exercise price of $12.79/share and an estimated fair value of $3.50/share using the Black-Scholes option pricing model. There were 2,433,537 stock options outstanding, with an average exercise price of $8.87/share as at December 31, 2005.

The Company uses the fair value based method for the determination of the stock-based compensation costs. The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model. In the pricing model, the risk free interest rate was 3.5%; volatility of 25%; and an expected life of 4.5 years.



5. Hedging activities:

(a) Financial instruments:

As at December 31, 2005, NuVista has hedged by way of costless collars
the following crude oil contracts:


-----------------------------------------------------------------------
WTI Average Price ($/bbl) Term
-----------------------------------------------------------------------
250 bbls/d Cdn$60.00 - Cdn$75.00 January 1, 2006 - March 31, 2006
250 bbls/d U.S.$60.00 - U.S.$84.00 January 1, 2006 - March 31, 2006
250 bbls/d Cdn$61.00 - Cdn$75.00 April 1, 2006 - June 30, 2006
-----------------------------------------------------------------------

As at December 31, 2005, NuVista has hedged by way of costless collars
the following natural gas contracts:


-----------------------------------------------------------------------
AECO Average Price (Cdn$/gj) Term
-----------------------------------------------------------------------
2,500 gj/d $7.00 - $11.15 November 1, 2005 - March 31, 2006
5,000 gj/d $8.25 - $12.33 April 1, 2006 - October 31, 2006
-----------------------------------------------------------------------

As at December 31, 2005, the market deficiency of the financial
instruments was approximately $500,000.

(b) Physical purchase contracts:

As at December 31, 2005, NuVista has entered into direct sale costless
collars to sell natural gas as follows:

-----------------------------------------------------------------------
AECO Average Price (Cdn$/gj) Term
-----------------------------------------------------------------------
17,500 gj/d $8.89 - $13.65 November 1, 2005 - March 31, 2006
15,000 gj/d $7.50 - $10.99 April 1, 2006 - October 31, 2006
-----------------------------------------------------------------------

 


INVESTOR INFORMATION

NuVista is an independent Canadian oil and natural gas exploration, development and production company with its common shares trading on the Toronto Stock Exchange under the symbol "NVA".

Corporate information provided herein contains forward-looking information. The reader is cautioned that assumptions used in the preparation of such information, which are considered reasonable by NuVista at the time of preparation, may be proven to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. There is no representation by NuVista that actual results achieved during the forecast period will be the same in whole or in part as those forecast.

FOR FURTHER INFORMATION PLEASE CONTACT:

NuVista Energy Ltd.
Keith A. MacPhail
Chairman
(403) 213-4315

or

Alex G. Verge
President and Chief Executive Officer
(403) 538-8501

or

Glenn A. Hamilton
Vice President and Chief Financial Officer
(403) 213-4302