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FOR: NUVISTA ENERGY LTD.

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

NuVista Energy Ltd. Announces 2008 Year End Results

Mar 5, 2009 - 16:16 ET

CALGARY, ALBERTA--(Marketwire - May 5, 2009) - NuVista Energy Ltd. (TSX:NVA) is pleased to announce its financial and operating results for the three months ended March 31, 2009, as follows:



Corporate Highlights
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months
ended March 31,
2009 2008 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Financial
($ thousands, except per share)
Production revenue 91,729 97,047 (5)
Funds from operations (1) 56,663 53,434 6
Per share - basic 0.72 0.88 (18)
Per share - diluted 0.72 0.87 (17)
Net earnings 2,632 7,150 (63)
Per share - basic 0.03 0.12 (75)
Per share - diluted 0.03 0.12 (75)
Total assets 1,444,792 1,355,671 7
Long-term debt, net of working
capital 360,652 423,208 (15)
Long-term debt, net of
adjusted working capital (1) 366,976 411,735 (11)
Shareholders' equity 816,742 720,033 13
Net capital expenditures 81,224 50,908 60
Corporate acquisition (non-cash) - 594,944 -
Weighted average common shares
outstanding (thousands):
Basic 79,165 60,678 30
Diluted 79,165 61,137 29

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Operating
(boe conversion - 6:1 basis)
Production
Natural gas (mmcf/d) 112.2 85.5 31
Natural gas liquids (bbls/d) 3,029 1,105 174
Oil (bbls/d) 4,447 3,985 12
Total oil equivalent (boe/d) 26,175 19,339 35
Product prices (2)
Natural gas ($/mcf) 6.53 7.82 (16)
Natural gas liquids ($/bbl) 39.19 77.74 (50)
Oil ($/bbl) 55.30 76.82 (28)
Operating expenses
Natural gas and natural gas
liquids ($/mcfe) 1.17 1.14 3
Oil ($/bbl) 16.91 10.53 61
Total oil equivalent ($/boe) 8.71 7.62 14
General and administrative
expenses ($/boe) 1.25 1.25 -
Funds from operations netback
($/boe) (1) 24.06 30.37 (21)
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----------------------------------------------------------------------------
NOTES:
(1) Funds from operations, funds from operations per share, funds from
operations netback and adjusted working capital are not defined by GAAP
in Canada and are referred to as non-GAAP measures. Funds from
operations are based on cash flow from operating activities as per the
statement of cash flows before changes in non-cash working capital and
asset retirement 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.
Funds from operations netback equals the total of revenues including
realized commodity derivative gains/losses less royalties,
transportation, general and administrative, restricted stock unit,
interest expenses and cash taxes calculated on a boe basis. Adjusted
working capital excludes the current portion of future income tax asset
or liability and commodity derivative asset or liability. Total boe is
calculated by multiplying the daily production by the number of days in
the period. For more details on non-GAAP measures, refer to
"Management's Discussion and Analysis" section of this press release.
(2) Product prices include realized gains/losses on commodity derivatives.

 


MESSAGE TO SHAREHOLDERS

NuVista Energy Ltd. ("NuVista") is pleased to report to its shareholders the financial and operating results for the three months ended March 31, 2009. Over the past five and one half years, the NuVista team has demonstrated our ability to protect and enhance the interests of our stakeholders over the long term by focusing on increasing our production on a per share basis while prudently managing debt levels. 

During the first quarter of 2009, NuVista adapted its business plan to respond to the global financial crisis and lower commodity prices. NuVista achieved record production levels while integrating a minor acquisition and reducing exploration and development expenditures in order to maintain financial flexibility. Through challenging and at times difficult industry conditions, NuVista continues to maintain a disciplined approach to its business. We employ an "acquire and develop" business model focused on reserves per share and production per share growth while maintaining our balance sheet strength. We closely manage capital spending levels as we control the timing of all significant capital projects through our high level of operatorship. We pride ourselves on being able to make business decisions based on timely and accurate data. This approach has enabled us to adapt to rapidly changing economic and market conditions. Due to low commodity prices and an uncertain economic environment, prudent financial management requires a responsive and flexible capital program in 2009, along with continuing to plan for our future.

Significant highlights for NuVista in the first quarter:

- Achieved record production of 26,175 boe/d with a 71% natural gas weighting. Record production levels were achieved despite severe cold weather in early January and the shut-in of some heavy oil production until differentials improved in late January. This is a testament to the ability of NuVista's production and field personnel to execute tie-ins, workovers and production optimization initiatives in a responsive manner. 

- Closed a $54 million property acquisition in our Ferrier/Sunchild, Wapiti, Northwest Saskatchewan and Waskahigan/Kaybob core areas on January 29, 2009. The acquisition was completed at favourable acquisition metrics of approximately $13 per boe of proven plus probable reserves and $34,000 per flowing boe/d. The characteristics of the acquisition are low decline liquids-rich natural gas production with higher than average corporate realized prices and lower than average corporate royalty rates and operating costs. 

- Implemented a $27 million exploration and development capital program that was primarily directed toward facility expenditures to tie-in production from our 2008 drilling program. We also participated in drilling ten wells in the quarter with an 80% success rate.

- Maintained financial flexibility by reducing exploration and development activities to fund the property acquisition and restore debt to targeted levels by the end of spring break-up.

On April 3, 2009, NuVista announced that its bank syndicate extended the revolving period of its credit facility until April 29, 2010, following their annual review of NuVista's reserves and financial results. In addition, the maximum borrowing amount of the credit facility was unchanged at $450 million. Currently, the interest rate for borrowings under the credit facility is approximately 3.25%.

Looking forward to the remainder of 2009, NuVista has developed a business plan that is focused on achieving the following three objectives:

1) Maintain Financial Flexibility

By reducing our exploration and development program following the closing of the property acquisition on January 29, 2009, we are targeting a debt level of $340 to $350 million by June 2009. This will provide $100 million of debt capacity to participate in what is becoming a buyers market for acquisitions. Throughout the second half of 2009, exploration and development expenditures are forecast to be less than cash flow in order to maintain financial flexibility and pursue accretive business combinations or asset purchases.

2) Maximizing Royalty Incentive Benefits

NuVista is positioning itself to increase development drilling in areas within Alberta where the impact of the Royalty Incentive Programs, announced March 3, 2009, have the most significant impact on full-cycle project economics, such as the plains areas in Eastern Alberta. In Eastern Alberta, risked capital to drill and case wells is approximately $275,000 per well. Based on the terms of the Royalty Incentive Programs, each of these wells will receive a $200,000 royalty credit which can be applied against NuVista's 2009 Crown royalties. In addition, these wells will have a 5% royalty rate for their first year of production, a period where these wells will produce most of their full-cycle economic value, at high production rates.

3) Positioning for the Future

In the second half of 2009, NuVista's capital program will be concentrated on investigating recovery concepts and drilling wells to set up an aggressive exploration and development program for 2010, should market conditions improve. One of these projects, a 15 to 20 horizontal oil well development program in West Central Saskatchewan, has already been set up for 2010 with the drilling of three horizontal wells in the fourth quarter of 2008 and an additional three wells in the first quarter of 2009. A second development project in our Fir/Kaybob area will be set up by drilling one or two horizontal Montney wells on seven and one-half sections of land where we have 12 vertical Montney producing wells. This project may ultimately result in 5 to 10 additional horizontal Montney wells, beginning in 2010. NuVista has 25 wells budgeted for second and third quarter of 2009 and is currently positioning itself to add to this program in the fourth quarter.

During the second half of 2009, NuVista intends to spend over one third of its exploration and development capital in the Wapiti core area. In addition to drilling high impact exploration wells, NuVista intends to investigate thicker lower Dunvegan sands by drilling at least two vertical wells and one horizontal well prior to year end. NuVista also intends to complete one additional vertical well in the Montney formation, monitor production from a vertical Montney completion brought on during the second quarter, and monitor drilling and completion results for horizontal Montney wells drilled to date or being drilled by other companies. To date three confidential horizontal wells have been drilled offsetting our acreage and over five additional horizontal wells are planned by other operators prior to year end. Both the Dunvegan and Montney plays, if successful, possess the size and scope to dramatically impact NuVista's capital program and financial results over the next five years.

NuVista is pleased to announce that Mr. Joshua Truba was appointed Vice President, Land effective January 1, 2009 and that Mr. Ross Andreachuk was appointed Vice President and Controller effective May 5, 2009. Mr. Truba joined NuVista in February 2005 and brings a strong background as a landman to his new role. Mr. Andreachuk joined NuVista in August 2006 and has played a key role in building NuVista's accounting team over the last three years. We look forward to the contribution Mr. Truba and Mr. Andreachuk will make in their new roles as members of NuVista's management team.

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 NuVista's audited consolidated financial statements for the year ended December 31, 2008. The following MD&A of financial condition and results of operations was prepared at and is dated May 5, 2009. Our audited consolidated financial statements, Annual Report, Annual Information Form and other disclosure documents for 2008 are available through our filings on SEDAR at www.sedar.com or 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. In certain circumstances natural gas liquid volumes have been converted to thousand cubic feet equivalent ("mcfe") on the basis of one barrel of natural gas liquids to six thousand cubic feet. Boe's and mcfe's may be misleading, particularly if used in isolation. A conversion ratio of one barrel to six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Forward-looking statements - Certain information set forth in this document contain forward-looking statements, including management's assessment of NuVista's future plans and operations, forecast production and growth and production and reserves, drilling plans and results, NuVista's planned capital budget, targeted debt level, the timing, allocation and efficiency of NuVista's capital program and the results therefrom, forecast funds from operations and targeted operating costs, benefits from the Alberta Government's announcement of royalty incentives, expectations regarding the payment of future taxes, expectations regarding future commodity prices, netbacks and industry conditions which are provided to allow investors to better understand our business. 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, changes in environmental regulations, tax laws and royalties and the ability to access sufficient capital from internal sources and bank and equity markets. 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, except as required by law.

Non-GAAP measurements - Within MD&A, references are made to terms commonly used in the oil and natural 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, per the statement of cash flows, 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 asset retirement 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. Funds from operations netbacks equal total revenue including realized commodity derivative gains/losses less royalties, transportation, operating costs, general and administrative, restricted stock unit, interest expenses and cash taxes. Management also uses field netbacks to analyze operating performance and adjusted working capital to analyze leverage. Field netbacks and adjusted working capital as presented, do not have any standardized meaning prescribed by Canadian GAAP and therefore may not be comparable with the calculation of similar measures for other entities. Field netbacks equal the total of revenue including realized commodity derivative gains/losses less royalties, transportation and operating costs. Adjusted working capital equals working capital excluding the current portions of future income tax asset or liability and commodity derivative asset or liability. Total boe is calculated by multiplying the daily production by the number of days in the period.



A reconciliation of funds from operations is presented in the following
table:

Three months ended March 31,
----------------------------------------------------------------------------
($ thousands) 2009 2008
----------------------------------------------------------------------------
Cash provided by operating activities 58,424 35,166
Add back:
Asset retirement expenditures 575 54
Change in non-cash working capital (2,336) 18,214
----------------------------------------------------------------------------
Funds from operations 56,663 53,434
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Plan of arrangement with Rider Resources Ltd. - On March 4, 2008, NuVista closed a business combination with Rider Resources Ltd. ("Rider" or the "Rider Acquisition") and a private placement financing with the Ontario Teachers' Pension Plan Board ("OTPP"). The Rider Acquisition resulted in the combination of NuVista and Rider, pursuant to which all of the issued and outstanding Rider shares were exchanged for common shares of NuVista. Rider shareholders received, for each Rider share held, 0.3540 of a NuVista share. The results of operations from the Rider assets have been included effective March 4, 2008.

Operating activities - For the three months ended March 31, 2009, NuVista drilled 10 (5.6 net) wells, resulting in four natural gas wells, four oil wells and two dry holes, for an overall success rate of 80%. NuVista operated seven of the wells drilled. During the first quarter, NuVista drilled three gas wells in the Wapiti core area and four oil wells in our West Central Saskatchewan core area. During the second quarter of 2009 NuVista expects to have a capital program of approximately $10 to $15 million in order to restore its financial flexibility following the closing of the property acquisition on January 29, 2009. NuVista expects to drill approximately 10 wells in the second quarter of 2009.



Production

Three months ended March 31,
----------------------------------------------------------------------------
2009 2008 % Change
----------------------------------------------------------------------------
Natural gas (mcf/d) 112,191 85,498 31
Liquids (bbls/d) 3,029 1,105 174
Oil (bbls/d) 4,447 3,985 12
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Total oil equivalent (boe/d) 26,175 19,339 35
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For the three months ended March 31, 2009, NuVista's average production was 26,175 boe/d, comprised of 112.2 mmcf/d of natural gas, 3,029 bbls/d of associated natural gas liquids ("liquids") and 4,447 bbls/d of oil, which represents a 35% increase over the same period in 2008. The increase is due to the inclusion of a full three months of Rider properties in 2009 compared to one month in 2008, the success of our drilling program and the property acquisition completed in January 2009.



Revenues

Three months ended March 31,
----------------------------------------------------------------------------
($ thousands, except per
unit amounts) 2009 2008 % Change
---------------------------------------------------
Natural gas $ $/mcf $ $/mcf $ $/mcf
Production revenue 64,554 6.39 60,844 7.82 6 (18)
Realized gain (loss) on
commodity derivatives 1,422 0.14 - - - -
----------------------------------------------------------------------------
Total 65,976 6.53 60,844 7.82 8 (16)
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----------------------------------------------------------------------------

Liquids $ $/bbl $ $/bbl $ $/bbl
Production revenue 10,684 39.19 7,816 77.74 37 (50)
Realized gain (loss) on
commodity derivatives - - - - - -
----------------------------------------------------------------------------
Total 10,684 39.19 7,816 77.74 37 (50)
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----------------------------------------------------------------------------

Oil $ $/bbl $ $/bbl $ $/bbl
Production revenue 16,491 41.20 28,387 78.29 (42) (47)
Realized gain (loss) on
commodity derivatives 5,645 14.10 (533) (1.47) 1,159 1,059
----------------------------------------------------------------------------
Total 22,136 55.30 27,854 76.82 (21) (28)
----------------------------------------------------------------------------
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For the three months ended March 31, 2009 revenues, including realized commodity derivative gains and losses, were $98.8 million, a 2% increase from $96.5 million for the same period in 2008. The increase in revenues for the three months ended March 31, 2009, compared to the same period of 2008 is primarily due to the 35% increase in production volumes. In addition to realized commodity derivative gains of $7.1 million for the three months ended March 31, 2009, we had physical sales contract price risk management gains of $10.1 million. Revenues were comprised of $66.0 million of natural gas revenue, $10.7 million of liquids revenue, and $22.1 million of oil revenue. The decrease in average realized commodity prices is comprised of a 16% decrease in the natural gas price to $6.53/mcf from $7.82/mcf, a 50% decrease in the liquids price to $39.19/bbl from $77.74/bbl and a decrease of 28% in the oil price to $55.30/bbl from $76.82/bbl.



Commodity price risk management

Three months ended March 31,
----------------------------------------------------------------------------
2009 2008
---------------------------------------------------------------
Realized Unrealized Total Realized Unrealized Total
Gain Gain Gain Gain Gain Gain
($ thousands) (Loss) (Loss) (Loss) (Loss) (Loss) (Loss)
----------------------------------------------------------------------------
Natural gas 1,422 (1,094) 328 - (3,884) (3,884)
Oil 5,645 (6,747) (1,102) (533) (5,860) (6,393)
----------------------------------------------------------------------------
Total gain
(loss) 7,067 (7,841) (774) (533) (9,744) (10,277)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


As part of our financial risk management strategy, NuVista has adopted a disciplined commodity price risk management program. The purpose of this program is to reduce volatility in our financial results, protect acquisition economics and stabilize cash flow against the unpredictable commodity price environment. NuVista's Board of Directors has approved a price risk management limit of up to 60% of forecast production, net of royalties, using fixed price, put option and costless collar contracts. To achieve NuVista's price risk management objectives, we enter into both commodity derivative and physical sale contracts. For the three months ended March 31, 2009, the commodity derivative price risk management program resulted in a loss of $0.8 million consisting of realized gain of $7.1 million and unrealized loss of $7.8 million. The loss of $0.8 million for 2009 consisted of a $0.3 million gain on natural gas hedges and a $1.1 million loss on crude oil hedges.

For the three months ended March 31, 2009, price risk management gains on our physical contracts totaled $10.1 million. As at March 31, 2009, the mark-to-market value of our financial commodity derivative contracts was a gain of $8.7 million and the mark-to-market value of our physical sales contract was a gain of $10.0 million, net of the deferred costs of $6.0 million.

The following is a summary of commodity price risk management contracts in place as at March 31, 2009:



(a) Financial contracts

Crude oil:

Volume Average Price (Cdn$/bbl) Term
----------------------------------------------------------------------------
January 1, 2009 -
1,000 bbls/d CDN. $64.00 - Bow River December 31, 2009
January 1, 2009 -
1,000 bbls/d CDN. $95.01 - $110.01 - WTI(1) December 31, 2009
April 1, 2009 -
1,000 bbls/d CDN. $48.91 - Bow River June 30, 2009

(1) This is a US$ denominated crude oil contract with an associated fixed
price foreign exchange contract of 1.0262 US$/Cdn$.


(b) Physical sale contracts

Natural gas:

Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
April 1, 2009 -
20,000 gj/d CDN. $7.45 - Fixed Price AECO October 31, 2009
April 1, 2009 -
5,000 gj/d CDN. $5.65 - AECO Floor(1),(4) October 31, 2009
November 1, 2009 -
20,000 gj/d CDN. $5.97 - $6.56 - AECO(2),(4) October 31, 2010
November 1, 2009 -
20,000 gj/d CDN. $5.55 - AECO Floor(3),(4) March 31, 2010

(1) The AECO put was purchased at a deferred cost of $0.82/gj for a total
cost of $0.9 million.
(2) The deferred cost associated with the funded collar was $0.30/gj for a
total cost of $2.2 million.
(3) The AECO put was purchased at a deferred cost of $0.97/gj for a total
cost of $2.9 million.
(4) The deferred costs are incurred monthly over the term of the contract
and will be offset against revenues.


Royalties

Three months ended March 31,
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------
Royalty rates (%)
Natural gas and liquids 18 26
Oil 7 14
----------------------------------------------------------------------------
Weighted average rate 15 23
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


Royalties of $15.2 million for the three months ended March 31, 2009, were 32% lower than the $22.2 million for the same period of 2008. The decrease in royalties for the three months ended March 31, 2009, resulted primarily from lower royalty rates on our Alberta properties. These lower royalty rates are the result of the implementation of the New Royalty Framework and lower natural gas and oil prices in the period. As a percentage of revenue, the average royalty rate for the first quarter of 2009 was 15% compared to 23% for the comparative period of 2008. Royalty rates by product for the three months ended March 31, 2009, were 18% for natural gas and liquids and 7% for oil compared to 26% for natural gas and liquids and 14% for oil for the same period in 2008. 

Royalty rates are based on government market reference prices and not our average realized prices that includes price risk management activities. As a result, the gains from our price risk management activities included in revenue result in a lower royalty rate as a percentage of revenue than if no price risk management activities had taken place. Alberta natural gas royalty rates for the three months ended March 31, 2009, were approximately 14% compared to 22% for the same period in 2008. Alberta oil royalty rates for the three months ended March 31, 2009, were approximately 9% compared to 14% for the same period in 2008.

Netbacks - The table below summarizes field netbacks by product for the three months ended March 31, 2009:



Netbacks - The table below summarizes field netbacks by product for the
three months ended March 31, 2009:

Natural gas and
liquids Oil Total
--------------------------------------------------------
130.4 mmcfe/d 4,447 bbl/d 26,175 boe/d
----------------------------------------------------------------------------
($ thousands, except
per unit amounts) $ $/mcfe $ $/bbl $ $/boe
Production revenue 75,238 6.41 16,491 41.20 91,729 38.94
Realized gain (loss)
on commodity
derivatives 1,422 0.12 5,645 14.10 7,067 3.00
----------------------------------------------------------------------------
76,660 6.53 22,136 55.30 98,796 41.94
Royalties (13,620) (1.16) (1,603) (4.00) (15,223) (6.46)
Transportation costs (1,407) (0.12) (371) (0.93) (1,778) (0.75)
Operating costs (13,743) (1.17) (6,768) (16.91) (20,511) (8.71)
----------------------------------------------------------------------------
Field netback 47,890 4.08 13,394 33.46 61,284 26.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The table below summarize funds from operations netbacks for the three
months ended March 31, 2009, compared to the three months ended March 31,
2008:

Three months ended March 31,
----------------------------------------------------------------------------
2009 2008 % Change
------------------------------------------------------
($ thousands, except
per unit amounts) $ $/boe $ $/boe $ $/boe
Production revenue 91,729 38.94 97,047 55.14 (5) (29)
Realized gain (loss)
on commodity
derivatives 7,067 3.00 (533) (0.30) 1,426 1,100
----------------------------------------------------------------------------
98,796 41.94 96,514 54.84 2 (24)
Royalties (15,223) (6.46) (22,227) (12.63) (32) (49)
Transportation (1,778) (0.75) (1,440) (0.82) 23 (9)
Operating costs (20,511) (8.71) (13,417) (7.62) 53 14
----------------------------------------------------------------------------
Field netback 61,284 26.02 59,430 33.77 3 (23)
General and
administrative (2,951) (1.25) (2,205) (1.25) 34 -
Restricted stock
units 40 0.02 (254) (0.14) 116 (114)
Interest (1,710) (0.73) (3,537) (2.01) (52) (64)
----------------------------------------------------------------------------
Funds from operations
netback 56,663 24.06 53,434 30.37 6 (21)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


Field netback for the three months ended March 31, 2009, decreased 23% to $26.02/boe from $33.77/boe compared to the same period in 2008. This decrease was primarily due to lower realized oil and natural gas prices partially offset by lower royalty rates.

Transportation - For the three months ended March 31, 2009, transportation costs were $1.8 million ($0.75/boe) compared to $1.4 million ($0.82/boe) for the same period in 2008. The increase in transportation costs in 2009 compared to 2008 is primarily due to the 35% increase in production volumes.

Operating - Operating expenses were $20.5 million for the three months ended March 31, 2009, compared to $13.4 million for the same period in 2008, an increase of 53%. This increase resulted from significantly higher production volumes. On a boe basis, operating costs increased 14% to $8.71/boe for the three months ended March 31, 2009, as compared to $7.62/boe for the same period of 2008. The increase in 2009 per unit costs resulted primarily from increased processing fees and property maintenance. For the three months ended March 31, 2009, natural gas and liquids operating expenses averaged $1.17/mcfe and oil operating expenses were $16.91/bbl compared to $1.14/mcfe and $10.53/bbl respectively for the same period of 2008.

General and administrative - General and administrative expenses, net of overhead recoveries, for the three months ended March 31, 2009, were $3.0 million ($1.25/boe), which remained unchanged on a per boe basis, over the $2.2 million ($1.25/boe) for the three months ended March 31, 2008.



Three months ended March 31,
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------
($ thousands, except per unit amounts)
Gross general and administrative expenses 4,471 3,827
Overhead recoveries (1,520) (1,622)
----------------------------------------------------------------------------
Net general and administrative expenses 2,951 2,205
----------------------------------------------------------------------------
Per boe $ 1.25 $ 1.25
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Stock-based compensation

Three months ended March 31,
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------
($ thousands)
Stock-based compensation 2,041 1,005
Restricted stock units (40) 254
----------------------------------------------------------------------------
Total 2,001 1,259
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


NuVista recorded a stock-based compensation charge of $2.0 million for the three months ended March 31, 2009, compared to $1.3 million for the same period in 2008. The stock-based compensation charge relates to the amortization of the value of stock option awards and the accrual for future payments under the Restricted Stock Unit ("RSU") Incentive Plan. The increase in the first quarter of 2009 relates primarily to an increase in the number of stock options outstanding. In January 2008, NuVista implemented an RSU Incentive Plan. Each RSU entitles participants to receive cash equal to the market value of the equivalent number of shares of NuVista. The RSUs become payable as they vest, typically over three years. In the first quarter of 2009, the RSU expense was in a credit position. NuVista paid cash as RSUs vested in the quarter, however this expense was offset by a reduction in the accrual for future payments associated with the decline in NuVista's share price.

Interest - Interest expense for the three months ended March 31, 2009, was $1.7 million ($0.73/boe) compared to $3.5 million ($2.01/boe) for the same period of 2008 due primarily to lower average interest rates. For the three months ended March 31, 2009, borrowing costs averaged 2.0% compared to 5.0% in the same period of 2008. The revolving term of NuVista's credit facility was extended on March 3, 2009, and as part of the terms of this extension NuVista's borrowing margin was increased to current market rates. Currently, NuVista's average borrowing rate is approximately 3.2%. Cash paid for interest for the three months ended March 31, 2009, was $1.6 million compared to $2.2 million for the same period of 2008.

Depreciation, depletion and accretion - Depreciation, depletion and accretion expenses for the three months ended March 31, 2009, were $42.4 million, an increase of 30% over the $32.7 million for the three months ended March 31, 2008. The average cost per unit was $18.01/boe for the three months ended March 31, 2009, compared to $18.58/boe in the same period in 2008.

Income taxes - For the first quarter of 2009, the provision for income tax was $1.7 million, as compared to $2.8 million for the same period in 2008. The decrease is primarily a result of lower earnings for the three months ended March 31, 2009 compared to the same period in 2008. The effective tax rate for the three months ended March 31, 2009, was 40% compared to 28% for the same period in 2008.

Capital expenditures - Capital expenditures were $81.2 million during the first quarter of 2009, compared to $50.9 million in the same period of 2008, with $27.2 million of exploration and development spending and $54.1 million spent on a complementary property acquisition.



Three months ended March 31,
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------
($ thousands)
Exploration and development
Land and retention costs 924 672
Seismic 2,584 2,601
Drilling and completion 11,990 11,712
Facilities and equipment 11,367 10,108
Corporate and other 288 152
----------------------------------------------------------------------------
Subtotal 27,153 25,245
----------------------------------------------------------------------------
Acquisitions
Property 54,071 25,663
----------------------------------------------------------------------------
Subtotal 54,071 25,663
----------------------------------------------------------------------------
Total capital expenditures 81,224 50,908
----------------------------------------------------------------------------
Corporate acquisition - non-cash - 594,944
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


Net earnings and funds from operations - For the three months ended March 31, 2009, net earnings decreased 63% to $2.6 million ($0.03/share, basic) from $7.2 million ($0.12/share, basic) for the same period in 2008. First quarter 2009 net earnings were lower when compared to the same period in 2008 primarily due to the impact of lower natural gas and oil prices. For the three months ended March 31, 2009, realized gains on our price risk management program totaled $17.2 million, partially mitigating the impact of lower natural gas and oil prices. Net earnings per share decreased 75% due to the decrease in net earnings and increase in number of shares outstanding following the Rider Acquisition.

For the three months ended March 31, 2009, NuVista's funds from operations were $56.7 million ($0.72/share, basic), a 6% increase from $53.4 million ($0.88/share, basic) for the three months ended March 31, 2008. Funds from operations for the three months ended 2009 were higher than the same period in 2008, primarily due to higher production volumes, partially offset by lower commodity prices, and increased operating and general and administrative costs. Funds from operations per share decreased 18% due to the increase in number of shares outstanding following the Rider Acquisition.

Liquidity and capital resources - As at March 31, 2009, debt net of adjusted working capital was $367.0 million, resulting in a net debt to annualized first quarter funds from operations ratio of 1.6:1. At March 31, 2009, NuVista had an adjusted working capital surplus of $24.5 million. Adjusted working capital excludes the current portion of the fair value of the commodity derivative asset of $8.7 million and the related current portion of future income tax liability of $2.3 million. We believe it is appropriate to exclude these amounts when assessing financial leverage. At March 31, 2009, NuVista had $58.5 million of unused bank borrowing capacity based on the current credit facility of $450.0 million.

NuVista has a credit facility from a syndicate of primarily Canadian banks with a maximum borrowing amount of $450.0 million. The credit facility is a 364-day revolving facility subject to an annual review by the bank syndicate, at which time a lender can provide an extension of the 364-day revolving period or request conversion to a one year term loan. During the revolving period, a determination of the maximum borrowing amount occurs semi-annually on or before April 30 and October 31.

On March 3, 2009, NuVista and the bank syndicate agreed to an extension of the revolving period from March 3, 2009 until April 30, 2009 in order for the bank syndicate to complete their annual review of NuVista's reserves and financial results. On April 3, 2009, NuVista's bank syndicate completed their annual review and extended the revolving period of the credit facility to April 29, 2010, and the term period to April 29, 2011. Under the term period, no principal payments would be required until April 29, 2011.

NuVista anticipates that funds from operations will provide the flexibility to fund its planned 2009 capital program. In this period of lower commodity prices and challenging economic environment, NuVista will place increased emphasis on maintaining its financial flexibility. NuVista plans to closely monitor its 2009 business plan and adjust capital programs in the context of commodity prices and access to bank and equity capital. It is NuVista's intent to have a reduced capital program for the remainder of the first half of 2009, which in turn is expected to reduce net debt to the targeted level of approximately $350 million.

As at March 31, 2009, there were 79.2 million common shares outstanding. There were 3.0 million of common share purchase warrants which expired on March 4, 2009. In addition, there were 5.9 million stock options outstanding, with an average exercise price of $13.65 per share.

Related party activities - In 2003, as part of the Plan of Arrangement with Bonavista Petroleum Ltd. ("Bonavista"), NuVista entered into a Technical Services Agreement ("TSA") with Bonavista for the provision of certain services to NuVista. On August 31, 2007, the TSA was terminated and replaced with a new services agreement that reflected the remaining ongoing services that will be provided by Bonavista. On November 1, 2008, this services agreement was terminated and Bonavista no longer provides any ongoing services to NuVista.

NuVista and Bonavista are considered related as two directors of NuVista, one of whom is NuVista's chairman, are also directors and officers of Bonavista and a director and an officer of NuVista are also officers of Bonavista. For the three months ended March 31, 2009, NuVista paid Bonavista $ nil (2008 - $0.4 million) in fees relating to general and administrative services provided by Bonavista. In 2009, NuVista charged Bonavista management fees for jointly owned partnerships totalling $0.3 million (2008 - $0.3 million). As at March 31, 2009, the amount receivable from Bonavista was $0.7 million (2008 - $5.6 million).

Contractual obligations and commitments - NuVista enters into contract obligations as part of conducting business. The following is a summary of NuVista's contractual obligations and commitments as at March 31, 2009:



($ thousands) Total 2009 2010 2011 2012 Thereafter
----------------------------------------------------------------------------
Transportation 13,250 3,612 3,075 2,335 1,691 2,537
Office lease 7,363 1,541 2,055 2,055 1,712 -
Physical sale contract
premiums 5,997 2,427 3,570 - - -
Long-term debt 391,507 - - 391,507 - -
----------------------------------------------------------------------------
Total commitments 418,117 7,580 8,700 395,897 3,403 2,537
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Quarterly financial information - The following table highlights NuVista's
performance for the eight quarterly reporting periods from June 30, 2007 to
March 31, 2009:

2009 2008 2007
-------- ----------------------------- ----------------------
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
----------------------------------------------------------------------------
Production
(boe/d) 26,175 25,688 26,065 26,153 19,339 14,251 13,590 14,147
($ thousands,
except per
share amounts)
Production
revenue 91,729 106,982 149,648 161,794 97,064 53,790 48,166 56,832
Net earnings 2,632 24,443 53,699 2,905 7,150 11,063 754 9,678
Net earnings
Per share
- basic 0.03 0.31 0.68 0.04 0.12 0.21 0.01 0.19
Per share
- diluted 0.03 0.31 0.68 0.04 0.12 0.21 0.01 0.18
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


NuVista has seen growth in quarterly production volumes over the prior eight quarters. The increases in production during the first and second quarters of 2008 relate primarily to the Rider Acquisition that closed on March 4, 2008. Production remained relatively constant over the last three quarters of 2008 as NuVista allocated cash flow to debt reduction rather than capital expenditures. The decline in production during the fourth quarter of 2008 related primarily to cold weather and the delay in the tie-in of several wells. Over the prior eight quarters, quarterly revenue has been in a range of $48.2 million to $161.8 million with revenue primarily influenced by production volumes, and natural gas and oil prices in the quarter. Net earnings have been in a range of $0.1 million to $53.7 million primarily influenced by production volumes, commodity prices and realized and unrealized gains and losses on commodity derivatives.

Critical accounting estimates - The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Certain accounting policies are critical to understanding the financial condition and results of operations of NuVista.

(a) Proved oil and natural gas reserves - Proved oil and natural gas reserves, as defined by the Canadian Securities Administrators in National Instrument 51-101 with reference to the Canadian Oil and Natural Gas Evaluation Handbook, are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

An independent reserve evaluator using all available geological and reservoir data as well as historical production data has prepared NuVista's oil and natural gas reserve estimates. Estimates are reviewed and revised as appropriate. Revisions occur as a result of changes in prices, costs, fiscal regimes, reservoir performance or a change in the Company's development plans. The effect of changes in proved oil and natural gas reserves on the financial results and position of the Company is described below.

(b) Depreciation, depletion and accretion expense - NuVista uses the full cost method of accounting for exploration and development activities whereby all costs associated with these activities are capitalized, whether successful or not. The aggregate of capitalized costs, net of certain costs related to unproved properties, and estimated future development costs is amortized using the unit-of-production method based on estimated proved reserves. Changes in estimated proved reserves or future development costs have a direct impact on depreciation and depletion expense.

Certain costs related to unproved properties and major development projects may be excluded from costs subject to depletion until proved reserves have been determined or their value is impaired. These properties are reviewed quarterly to determine if proved reserves should be assigned, at which point they would be included in the depletion calculation, or for impairment, for which any write-down would be charged to depreciation and depletion expense.

(c) Full cost accounting ceiling test - The carrying value of property, plant and equipment is reviewed at least annually for impairment. Impairment occurs when the carrying value of the asset is not recoverable by the future undiscounted cash flows. The cost recovery ceiling test is based on estimates of proved reserves, production rates, petroleum and natural gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements could be material. Any impairment would be charged as additional depletion and depreciation expense.

(d) Asset retirement obligation - The asset retirement obligations are estimated based on existing laws, contracts or other policies. The fair value of the obligation is based on estimated future costs for abandonments and reclamations discounted at a credit adjusted risk free rate. The costs are included in property, plant and equipment and amortized over its useful life. The liability is adjusted each reporting period to reflect the passage of time, with the accretion charged to earnings and for revisions to the estimated future cash flows. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements could be material.

(e) Income taxes - The determination of income and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded.

(f) Goodwill - Goodwill is recorded on a business combination when the total purchase consideration exceeds the fair value of the net identifiable assets and liabilities of the acquired entity. The goodwill balance is not amortized, however, and must be assessed for impairment at least annually. Impairment is initially determined based on the fair value of a reporting unit compared to its book value. Any impairment must be charged to earnings in the period the impairment occurs. The Company has one reporting unit, being the entity as a whole, and as at March 31, 2009, we have determined there was no goodwill impairment.

Update on regulatory matters

(a) New Alberta Royalty Framework - On October 25, 2007, the Government of Alberta released a report entitled "The New Royalty Framework" (the "NRF") containing the Government's proposals for Alberta's new royalty regime, which was followed by the Mines and Minerals (New Royalty Framework) Amendment Act, 2008, which was given Royal Assent on December 2, 2008. The NRF and the applicable new legislation became effective on January 1, 2009. The NRF establishes new royalty rates for conventional oil, natural gas and oil sands.

On April 10, 2008, the Government of Alberta introduced two new royalty programs that will encourage the development of deep oil and gas reserves, and these are: (a) a five-year oil program for exploration wells over 2,000 metres that will provide royalty adjustments to offset higher drilling costs and provide a greater incentive for producers to continue to pursue new, deeper oil plays (these oil wells will qualify for up to a $1 million or 12 months of royalty offsets, whichever comes first); and (b) a five-year natural gas deep drilling program that will replace the existing program in order to encourage continued deep gas exploration for wells deeper than 2,500 metres (the program will create a sliding scale of royalty credit according to depth, of up to $3,750 per metre). These new programs are to be implemented along with the NRF.

In response to the drop in commodity prices experienced during the second half of 2008, the Government of Alberta announced on November 19, 2008, the introduction of a five year program of transitional royalty rates with the intent of promoting new drilling. Under this new program companies drilling new natural gas or conventional oil deep wells (between 1,000 and 3,500 metres) will be given a one-time option, on a well by well basis, to adopt either the new transitional royalty rates or those outlined in the NRF. In order to qualify for this program wells must be drilled during the period starting on November 19, 2008, and ending on December 31, 2013. Following this period all new wells drilled will automatically be subject to the NRF.

On March 3, 2009, the Government of Alberta announced a three-point incentive program to stimulate new and continued economic activity in Alberta which included a drilling royalty credit for new conventional oil and natural gas wells and a new well royalty incentive program. Under the drilling royalty credit program a $200 per metre royalty credit will be available on new conventional oil and natural gas wells drilled between April 1, 2009 and March 31, 2010, subject to certain maximum amounts. The maximum credits available will be determined by the company's production level in 2008 and its drilling activity between April 1, 2009 and March 31, 2010. Based on NuVista's 2008 production it will be entitled to a maximum credit of 40% of royalties payable in the period April 1, 2009 to March 31, 2010. The new well incentive program will apply to wells beginning production of conventional oil and natural gas between April 1, 2009 and March 31, 2010 and provides for a maximum 5% royalty rate for the first 12 months of production, up to a maximum of 50,000 barrels or 500 mmcf of natural gas.

As royalties under the NRF are sensitive to both commodity prices and production levels, the estimated NRF Alberta and corporate royalty rates will fluctuate with commodity prices, well production rates, production decline of existing wells, and performance and location of new wells drilled.

Update on accounting policies and financial reporting matters

(a) Goodwill and intangible assets - Effective January 1, 2009, NuVista adopted Section 3064, Goodwill and Intangible Assets issued by the Canadian Institute of Chartered Accountants ("CICA"). Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets subsequent to its initial recognition. This new section has no current impact on NuVista's consolidated financial statements.

(b) International Financial Reporting Standards - In February 2008, the Canadian Accounting Standards Board confirmed January 1, 2011, as the effective date for the requirement to report under International Financial Reporting Standards ("IFRS") with comparative 2010 periods converted as well. Canadian generally accepted accounting principles as we currently know them, will cease to exist for all public reporting entities.

In order to meet the requirement to transition to IFRS, NuVista has appointed internal staff to lead the conversion project along with sponsorship from an executive steering committee. Nuvista has also involved external auditors and external consultants as required during the conversion project. Nuvista has provided training to key employees, completed a preliminary analysis of the accounting differences and is monitoring the impact of the transition on its business practices, information systems and internal control over financial reporting. During our preliminary analysis, accounting implementation for certain areas were identified as having the greatest potential impact to NuVista's consolidated financial statements in terms of complexity and effort. NuVista has determined that accounting for property, plant and equipment, impairment testing, asset retirement obligation, stock-based compensation, employee future benefits and income taxes will be impacted by the conversion to IFRS. The impact of IFRS on Nuvista's consolidated financial statements is not reasonably determinable at this time.

Internal control reporting

NuVista's President and Chief Executive Officer ("CEO") and Vice President, Finance and Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting as defined in National Instrument 52-109. NuVista's CEO and CFO have designed disclosure controls and procedures, or caused them to be designed under their supervision, to provide reasonable assurance that information to be disclosed by NuVista is accumulated and communicated to management as appropriate to allow timely decisions regarding the required disclosure. The CEO and CFO have also designed internal controls over financial reporting, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. During the quarter ended March 31, 2009, there have been no changes to NuVista's internal control over financial reporting that have materially or are reasonably likely to materially affect the internal control over financial reporting.

Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements, error or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable, not absolute assurance, that the objectives of the control system are met.

Assessment of business risks

The following are the primary risks associated with the business of NuVista. Most of these risks are similar to those affecting others in the conventional oil and natural gas sector. NuVista's financial position and results of operations are directly impacted by these factors:

- Operational risk associated with the production of oil and natural gas;

- Reserves risk with respect to the quantity and quality of recoverable reserves;

- Commodity risk as crude oil and natural gas prices fluctuate due to market forces;

- Financial risk such as volatility of the Canadian/US dollar exchange rate, interest rates and debt service obligations;

- Risk associated with the current global financial crisis;

- Risk associated with the re-negotiation of NuVista's credit facility and the continued participation of NuVista's lenders;

- Market risk relating to the availability of transportation systems to move the product to market;

- Environmental and safety risk associated with well operations and production facilities; and

- Changing government regulations relating to royalty legislation, income tax laws, incentive programs, operating practices and environmental protection relating to the oil and natural gas industry.

NuVista seeks to mitigate these risks by:

- Acquiring properties with established production trends to reduce technical uncertainty as well as undeveloped land with development potential;

- Maintaining a low cost structure to maximize product netbacks and reduce impact of commodity price cycles;

- Diversifying properties to mitigate individual property and well risk;

- Maintaining product mix to balance exposure to commodity prices;

- Conducting rigorous reviews of all property acquisitions;

- Monitoring pricing trends and developing a mix of contractual arrangements for the marketing of products with creditworthy counterparties;

- Maintaining a price risk management program to manage commodity prices and foreign exchange currency rates risk and transacting with creditworthy counterparties;

- Ensuring strong third-party operators for non-operated properties;

- Adhering to NuVista's safety program and keeping abreast of current operating best practices;

- Keeping informed of proposed changes in regulations and laws to properly respond to and plan for the effects that these changes may have on our operations;

- Carrying industry standard insurance to cover losses;

- Establishing and maintaining adequate cash resources to fund future abandonment and site restoration costs;

- Closely monitoring commodity prices and capital programs to manage financial leverage; and

- Monitoring the bank and equity markets to understand how changes in the capital market may impact NuVista's business plan.

OUTLOOK

Although the current financial and commodity markets create considerable uncertainty in the near term, NuVista will be responsive to economic conditions and continue with its disciplined acquire and develop business model. Our 2009 capital program will be reviewed continually throughout the year in the context of commodity prices and financial markets. We continue to look at 2009 as a year that will have as many opportunities as challenges. 

NuVista forecasts 2009 funds from operations of $185 million based on current pricing assumptions. These assumptions are $4.50/mcf for AECO natural gas, US$50.00 for WTI crude oil, a foreign exchange rate of 0.81 and include price risk management contracts currently in place but have not included any benefits associated with the Alberta Government's announcement of royalty incentives on March 3, 2009. Based on this forecast of funds from operations, our Board of Directors has approved a 2009 capital budget of $175 million. Approximately $95 million of the capital program will be allocated to exploration and development activities with the flexibility to either accelerate or defer expenditures based upon market conditions. New royalty incentives announced on March 3, 2009 will improve rates of return for drilling in areas such as Eastern Alberta. We expect to drill 50 to 70 wells and this should result in 2009 production averaging between 26,000 boe/d and 26,500 boe/d. Our reduced 2009 capital program will result in a high-grading of opportunities in 2009 and a growing prospect inventory heading into 2010. We will continue to invest human resources and capital on our emerging resource plays in order to develop a thorough understanding of recovery concepts. We will advance these projects in 2009 by drilling new wells to assess recovery from each of these resource plays. 

For the first half of 2009, our objective is to limit capital spending to our funds from operations. Capital spending during the first half of 2009, including property acquisitions, is forecasted to be $90 to $100 million. Production in the first half of 2009 is forecast to be within our 26,000 boe/d to 26,500 boe/d guidance range for 2009. This forecast incorporates the first quarter actual production, as well as an extended planned turnaround in our Fir/Kaybob processing facility in early May. 

Over the long term we believe that supply and demand fundamentals should result in significant upside for both oil and natural gas prices, however we must be prepared to endure an extended period of low prices before this recovery occurs. We believe our counter-cyclical strategy of acquiring premium assets at attractive prices over the next two to three years and optimizing production from these assets will richly reward our stakeholders over the long term. Throughout our five and one-half year history, NuVista has demonstrated a disciplined and flexible approach to spending and allocating capital with a focus on profitable per share growth while maintaining a strong balance sheet. NuVista will continue with this approach in 2009.


Sincerely,



Alex G. Verge Robert F. Froese
President & CEO Vice-President, Finance & CFO
May 5, 2009


NUVISTA ENERGY LTD.

Consolidated Balance Sheets

March 31, December 31,
($ thousands) 2009 2008
----------------------------------------------------------------------------
(unaudited)

Assets
Current assets
Cash and cash equivalents $ 176 $ 139
Accounts receivable and prepaids 67,458 64,712
Commodity derivative asset (note 7) 8,672 16,513
----------------------------------------------------------------------------
76,306 81,364
Oil and natural gas properties and equipment
(note 3) 1,284,770 1,242,216
Goodwill 83,716 83,716
----------------------------------------------------------------------------
$ 1,444,792 $ 1,407,296
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 43,103 $ 50,710
Future income taxes 2,348 4,954
----------------------------------------------------------------------------
45,451 55,664
Long-term debt (note 5) 391,507 355,407
Compensation liability (note 6) 128 850
Asset retirement obligations (note 4) 48,569 46,296
Future income taxes 142,395 137,779
Shareholders' equity
Share capital, warrants and contributed
surplus (note 6) 600,852 598,042
Retained earnings 215,890 213,258
----------------------------------------------------------------------------
816,742 811,300
----------------------------------------------------------------------------
$ 1,444,792 $ 1,407,296
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Commitments (note 9)

See accompanying notes to consolidated financial statements.


NUVISTA ENERGY LTD.

Consolidated Statements of Earnings, Comprehensive Income and Retained
Earnings

Three months ended March 31,
($ thousands, except per share amounts) 2009 2008
----------------------------------------------------------------------------
(unaudited)

Revenues
Production $ 91,729 $ 97,047
Royalties (15,223) (22,227)
Realized gain (loss) on commodity derivatives 7,067 (533)
Unrealized loss on commodity derivatives (7,841) (9,744)
----------------------------------------------------------------------------
75,732 64,543
----------------------------------------------------------------------------
Expenses
Operating 20,511 13,417
Transportation 1,778 1,440
General and administrative 2,951 2,205
Interest 1,710 3,537
Stock-based compensation 2,001 1,259
Depreciation, depletion and accretion 42,424 32,701
----------------------------------------------------------------------------
71,375 54,559
----------------------------------------------------------------------------
Earnings before income taxes 4,357 9,984
Future income tax expense 1,725 2,834
----------------------------------------------------------------------------
Net Earnings 2,632 7,150
Other comprehensive income
Amortization of fair value of financial
instruments - (17)
----------------------------------------------------------------------------
Comprehensive income $ 2,632 $ 7,133
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings, beginning of period 213,258 125,063
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings, end of period $ 215,890 $ 132,213
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share - basic $ 0.03 $ 0.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share - diluted $ 0.03 $ 0.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


NUVISTA ENERGY LTD.

Consolidated Statement of Cash Flows

Three months ended March 31,
($ thousands) 2009 2008
----------------------------------------------------------------------------
(unaudited)

Cash provided by (used in)
Operating Activities
Net earnings $ 2,632 $ 7,150
Items not requiring cash from operations
Depreciation, depletion and accretion 42,424 32,701
Stock-based compensation 2,041 1,005
Unrealized gain on commodity derivatives 7,841 9,744
Future income taxes 1,725 2,834
Asset retirement expenditures (575) (54)
Decrease (increase) in non-cash working
capital 2,336 (18,214)
----------------------------------------------------------------------------
58,424 35,166
----------------------------------------------------------------------------

Financing Activities
Issue of share capital and warrants, net of
share issuance costs - 84,814
Increase in long-term debt 36,100 236,134
Repayment of long-term debt - (303,538)
----------------------------------------------------------------------------
36,100 17,410
----------------------------------------------------------------------------

Investing Activities
Oil and natural gas properties and equipment (27,153) (25,238)
Transaction costs on Rider acquisition - (4,130)
Property acquisition (note 3) (54,071) (23,063)
Decrease (increase) in non-cash working
capital (13,263) 740
----------------------------------------------------------------------------
(94,487) (51,691)
----------------------------------------------------------------------------
Increase in cash and cash equivalents 37 885
Cash and cash equivalents, beginning of
period 139 -
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 176 $ 885
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


NUVISTA ENERGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2009.

 


The unaudited consolidated financial statements of NuVista Energy Ltd. ("Nuvista" or "the Company") 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, 2008, except as noted below in note 1. The consolidated financial statements for the three months ended March 31, 2009, should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2008. Certain amounts have been reclassified to conform with the current year's presentation. All tabular amounts are in thousands, except per share amounts, unless otherwise stated.


1. Adoption of new accounting policies

Goodwill and intangible assets

Effective January 1, 2009, the Company adopted Section 3064, Goodwill and Intangible Assets issued by the Canadian Institute of Chartered Accountants ("CICA"). Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets subsequent to its initial recognition. This new section has no current impact on the Company's consolidated financial statements.

2. Future accounting changes

International Financial Reporting Standards

In February 2008, the Canadian Accounting Standards Board confirmed January 1, 2011, as the effective date for the requirement to report under International Financial Reporting Standards ("IFRS") with comparative 2010 periods converted as well. Canadian GAAP as we currently know them, will cease to exist for all public reporting entities.

In order to meet the requirement to transition to IFRS, the Company has appointed internal staff to lead the conversion project along with sponsorship from an executive steering committee. The Company involves external auditors and external consultants, as required, during the conversion project. The Company has provided training to key employees, completed a preliminary analysis of the accounting differences and is monitoring the impact of the transition on its business practices, information systems and internal control over financial reporting. During the Company's preliminary analysis, accounting implementation for certain areas were identified as having the greatest potential impact to the Company's consolidated financial statements in terms of complexity and effort. The Company has determined that accounting for property, plant and equipment, impairment testing, asset retirement obligation, stock-based compensation, employee future benefits and income taxes will be impacted by the conversion to IFRS. The impact of IFRS on the Company's consolidated financial statements is not reasonably determinable at this time.

3. Property acquisition

On January 29, 2009, the Company acquired certain natural gas properties and related facilities in the Ferrier/Sunchild, Wapiti and Northwest Saskatchewan core areas. The purchase price was approximately $54.1 million, net of asset retirement obligations. The acquisition was financed with bank borrowings. The results of operations of these properties have been included in the consolidated financial statements of the Company since the acquisition date.

4. Asset retirement obligations

Total asset retirement obligations are based on estimated costs to reclaim and abandon ownership interests in oil and natural gas assets including well sites, gathering systems and processing facilities. At March 31, 2009, the estimated total undiscounted amount of cash flows required to settle the Company's asset retirement obligations is $198.3 million (2008 - $187.9 million), which will be incurred over the next 51 years. The majority of the costs will be incurred between 2010 and 2036. A credit-adjusted risk-free rate of 8% (2008 - 8%) and an inflation rate of 2% (2008 - 2%) were used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligations is provided below:

March 31, 2009 December 31, 2008
----------------------------------------------------------------------------
Balance, beginning of period $ 46,296 $ 26,574
Accretion expense 909 3,026
Liabilities incurred 611 7,203
Liabilities acquired 1,328 8,505
Change in assumptions - 3,504
Liabilities settled (575) (2,516)
----------------------------------------------------------------------------
Balance, end of period $ 48,569 $ 46,296
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


5. Long-term debt

On April 3, 2009, the Company received an extension of the revolving credit facility until April 29, 2010. The maximum borrowing amount of the credit facility remains unchanged at $450.0 million (2008 - $450.0 million).

Borrowing under the credit facility may be made by prime loans, bankers' acceptances and/or US libor advances. These advances bear interest at the bank's prime rate and/or at money market rates plus a stamping fee. The credit facility is secured by a first floating charge debenture, general assignment of book debts and the Company's oil and natural gas properties and equipment. The credit facility has a 364-day revolving period and is subject to an annual review by the lenders, at which time a lender can request conversion to a one year term loan. During the revolving period, a determination of the maximum borrowing amount occurs semi-annually on or before April 30 and October 31. During the term period, no principal payments would be required until April 29, 2011. As such, this credit facility is classified as long-term. Cash paid for interest expense for the three months ended March 31, 2009 was $1.6 million (2008 - $2.2 million).



6. Shareholders' equity

(a) Share capital, warrants and contributed surplus

March 31, 2009 December 31, 2008
----------------------------------------------------------------------------
Share capital $ 587,460 $ 587,460
Warrants - 3,454
Contributed surplus 13,392 7,128
----------------------------------------------------------------------------
Total $ 600,852 $ 598,042
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(b) Authorized

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

(c) Common shares issued

March 31, 2009 December 31, 2008
---------------------------------------
Number Amount Number Amount
----------------------------------------------------------------------------
Balance, beginning of period 79,164 $ 587,460 52,704 $240,245
Issued for cash - - 6,000 80,546
Issued on Rider acquisition - - 19,844 256,195
Exercise of stock options - - 616 6,545
Stock-based compensation - - - 4,144
Cost associated with shares
issued, net of future tax
benefit of $nil (2008 - $84) - - - (215)
----------------------------------------------------------------------------
Balance, end of period 79,164 $ 587,460 79,164 $587,460
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


On March 4, 2008, the Company issued 6.0 million units of NuVista ("Unit") at a price of $14.00 per Unit for gross proceeds of $84.0 million by way of a private placement. Each Unit consisted of one common share and one-half of a warrant.



(d) Warrants

March 31, 2009 December 31, 2008
---------------------------------------
Number Amount Number Amount
----------------------------------------------------------------------------
Balance, beginning of period 3,000 $ 3,454 - $ -
Issued - - 3,000 3,454
Transferred to contributed surplus
on expiry (3,000) (3,454) - -
----------------------------------------------------------------------------
Balance, end of period - $ - 3,000 $ 3,454
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


At December 31, 2008, there were 3.0 million common share purchase warrants outstanding. Each warrant entitled the holder thereof to acquire, subject to adjustment, one common share for $15.50, prior to March 4, 2009. As of March 5, 2009, these warrants expired unexercised.



(e) Contributed surplus

March 31, 2009 December 31, 2008
----------------------------------------------------------------------------
Balance, beginning of period $ 7,128 $ 4,967
Stock-based compensation 2,810 6,305
Exercise of stock options - (4,144)
Expired warrants 3,454 -
----------------------------------------------------------------------------
Balance, end of period $ 13,392 $ 7,128
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


(f) Per share amounts

During the three months ended March 31, 2009, there were 79,164,575 (2008 - 60,677,847) weighted average shares outstanding. On a diluted basis, there were 79,165,116 (2008 - 61,137,409) weighted average shares outstanding after giving effect for dilutive stock options. The number of anti-dilutive options totaled 5,824,820 for the three months ended March 31, 2009 (2008 - 2,187,664).

(g) Stock options

The Company has established a stock option plan whereby officers, directors, employees and service providers may be granted options to purchase common shares. Options granted prior to December 2008, vest at the rate of 25% per year and expire six years from the grant date. The terms of future stock option grants were amended in December 2008. Pursuant to the amendment, options subsequently granted will vest at the rate of 33.3% per year and expire 6.5 years after the grant date. The total stock options outstanding plus the Class B Performance Shares cannot exceed 10% of the outstanding common shares. The summary of stock option transactions is as follows:



March 31, 2009 December 31, 2008
-----------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
----------------------------------------------------------------------------
Balance, beginning of period 6,111,945 $ 13.69 4,046,400 $ 13.46
Granted 27,500 7.10 3,263,260 13.64
Exercised - - (615,675) 10.63
Forfeited (188,800) 14.68 (508,715) 14.63
Expired (63,450) 12.23 (73,325) 17.64
----------------------------------------------------------------------------
Balance, end of period 5,887,195 $ 13.65 6,111,945 $ 13.69
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


The Company uses the fair value based method for the determination of the stock-based compensation costs. The fair value of each option granted during the three months ended March 31, 2009 was estimated on the date of grant using the Black-Scholes option pricing model. In the pricing model, the risk-free interest rate used was 2% (2008 - 4.5%); volatility of 50% (2008 - 33%); an average expected life of 4.5 years (2008 - 4.5 years); an estimated forfeiture rate of 10% (2008 - 10%); and dividends of nil (2008 - nil). The weighted average fair value of stock options granted during the three months ended March 31, 2009 was $3.03 per option (2008 - $4.67 per option). For the three months ended March 31, 2009, the Company capitalized $0.8 million (2008 - $0.4 million) in stock based compensation.

(h) Restricted stock units

In January 2008, the Board of Directors approved a Restricted Stock Unit ("RSU") Incentive Plan for employees and officers. Each RSU entitles participants to receive cash equal to the market value of the equivalent number of shares of the Company. The RSUs become payable as they vest over their lives, typically three years.

For the three months ended March 31, 2009, the Company recorded an RSU stock-based compensation expense of $(0.6) million (2008 - $0.3 million) and capitalized $(0.1) million (2008 - $0.1 million) to property, plant and equipment with a corresponding offset recorded in stock-based compensation liability. The stock-based compensation expense was based on the trading price of the Company's shares on March 31, 2009.



The following table summarizes the change in RSUs :

March 31, 2009 December 31, 2008
----------------------------------------------------------------------------
Number Number
----------------------------------------------------------------------------
Balance, beginning of period 351,543 -
Vested (97,725) -
Granted 4,900 390,163
Forfeited (8,754) (38,620)
----------------------------------------------------------------------------
Balance, end of period 249,964 351,543
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The following table summarizes the change in stock-based compensation
liability relating to the RSUs:

March 31, 2009 December 31, 2008
----------------------------------------------------------------------------
Amount Amount
----------------------------------------------------------------------------
Balance, beginning of period $ 1,461 $ -
Change during the period (722) 1,461
----------------------------------------------------------------------------
Balance, end of period $ 739 $ 1,461
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock-based compensation liability -
current (included in accounts payable
and accrued liabilities) $ 611 $ 611
----------------------------------------------------------------------------
Stock-based compensation liability -
long-term $ 128 $ 850
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 


For the three months ended March 31, 2009, 97,725 RSUs vested for a cash value of $0.7 million (2008 - $ nil).

7. Risk management activities

(a) Financial instruments

The Company's financial instruments recognized in the consolidated balance sheet consist of cash and cash equivalents, accounts receivable, commodity derivative contracts, accounts payable and accrued liabilities, and long-term debt. Unless otherwise noted, carrying values reflect the current fair value of the Company's financial instruments due to their short-term maturities. The estimated fair values of recognized financial instruments have been determined based on the Company's assessment of available market information and appropriate methodologies, through comparisons to similar instruments, or third party quotes.



As at March 31, 2009, the Company has entered into the following crude oil
contracts:

Volume Average Price (Cdn$/bbl) Term
----------------------------------------------------------------------------
January 1, 2009 -
1,000 bbls/d CDN. $64.00 - Bow River December 31, 2009
January 1, 2009 -
1,000 bbls/d CDN. $95.01 - $110.01 - WTI(1) December 31, 2009
April 1, 2009 -
1,000 bbls/d CDN. $48.91 - Bow River June 30, 2009

(1) This is a US$ denominated crude oil contract with an associated fixed
price foreign exchange contract of 1.0262 US$/Cdn$.

As at March 31, 2009, the mark-to-market value of the financial commodity
contracts was an asset of $8.7 million.


(b) Physical sale contracts

As at March 31, 2009, the Company has entered into direct natural gas sale
contracts as follows:

Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
April 1, 2009 -
20,000 gj/d CDN. $7.45 - Fixed Price AECO October 31, 2009
April 1, 2009 -
5,000 gj/d CDN. $5.65 - AECO Floor(1),(4) October 31, 2009
November 1, 2009 -
20,000 gj/d CDN. $5.97 - $6.56 AECO(2),(4) October 31, 2010
November 1, 2009 -
20,000 gj/d CDN. $5.55 - AECO Floor(3),(4) March 31, 2010

(1) The AECO put was purchased at a deferred cost of $0.82/gj for a total
cost of $0.9 million.
(2) The deferred cost associated with the funded collar was $0.30/gj for a
total cost of $2.2 million.
(3) The AECO put was purchased at a deferred cost of $0.97/gj for a total
cost of $2.9 million.
(4) The deferred costs are incurred monthly over the term of the contract
and will be offset against revenues.

 


These physical sale contracts are normal purchase and sale transactions and as such are not considered financial instruments.

8. Relationship with Bonavista Petroleum Ltd.

In 2003, as part of the Plan of Arrangement with Bonavista Petroleum Ltd. ("Bonavista"), NuVista entered into a Technical Services Agreement ("TSA") with Bonavista for the provision of certain services to NuVista. On August 31, 2007, the TSA was terminated and replaced with a new services agreement that reflects the remaining ongoing services that will be provided by Bonavista. On November 1, 2008, this services agreement was terminated and Bonavista no longer provides any ongoing services to NuVista. NuVista and Bonavista are considered related as two directors of NuVista, one of whom is NuVista's chairman, are also directors and officers of Bonavista and a director and an officer of NuVista are also officers of Bonavista.

For the three months ended March 31, 2009, NuVista paid Bonavista $ nil (2008 - $0.4 million) in fees relating to general and administrative services provided by Bonavista. In 2009, NuVista charged Bonavista management fees for jointly owned partnerships totaling $0.3 million (2008 - $0.3 million). As at March 31, 2009, the amount receivable from Bonavista was $0.7 million (2008 - $5.6 million).

The above transactions are considered to be in the normal course of business and have been measured at their exchange amounts, being the amounts agreed to by both the parties.

9. Commitments

The following is a summary of the Company's contractual obligations and commitments as at March 31, 2009:



Total 2009 2010 2011 2012 Thereafter
----------------------------------------------------------------------------
Transportation $ 13,250 $ 3,612 $3,075 $ 2,335 $1,691 $ 2,537
Office lease 7,363 1,541 2,055 2,055 1,712 -
Physical sale contract
premiums 5,997 2,427 3,570 - - -
Long-term debt 391,507 - - 391,507 - -
----------------------------------------------------------------------------
Total commitments $418,117 $ 7,580 $8,700 $395,897 $3,403 $ 2,537
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Corporate Information

Directors
Keith A. MacPhail, Chairman
W. Peter Comber, Barrantagh Investment Management Inc.
Pentti O. Karkkainen, KERN Partners
Ronald J. Poelzer, Bonavista Energy Trust
Craig W. Stewart, RMP Energy Ltd.
Alex G. Verge, President and CEO
Clayton H. Woitas, Range Royalty Management Ltd.
Grant A. Zawalsky, Burnet, Duckworth & Palmer LLP

Officers
Keith A. MacPhail, Chairman
Alex G. Verge, President and CEO
Robert F. Froese, Vice President, Finance and CFO
Ross L. Andreachuk, Vice President and Controller
Kevin J. Christie, Vice President, Exploration
Steven J. Dalman, Vice President, Business Development
D. Chris McDavid, Vice President, Operations
Daniel B. McKinnon, Vice President, Engineering
Joshua T. Truba, Vice President, Land
Glenn A. Hamilton, Corporate Secretary

Auditors Legal Counsel
KPMG LLP Burnet, Duckworth & Palmer LLP
Chartered Accountants Calgary, Alberta
Calgary, Alberta

Bankers Registrar and Transfer Agent
Canadian Imperial Bank of Commerce Valiant Trust Company
Bank of Montreal Calgary, Alberta
Royal Bank of Canada
Toronto Dominion Bank
Bank of Nova Scotia
Alberta Treasury Branches
Union Bank of California, Canada Branch

Engineering Consultants Stock Exchange Listing
GLJ Petroleum Consultants Ltd. Toronto Stock Exchange
Calgary, Alberta Trading Symbol "NVA"

 



FOR FURTHER INFORMATION PLEASE CONTACT:

NuVista Energy Ltd.
Alex G. Verge
President and CEO
(403) 538-8501

or

NuVista Energy Ltd.
Robert F. Froese
Vice President, Finance and CFO
(403) 538-8530

or

NuVista Energy Ltd.
Suite 3500, 700 - 2nd Street SW
Calgary, AB T2P 2W2
(403) 538-8500
(403) 538-8505 (FAX)
Email: inv_rel@nuvistaenergy.com
Website: www.nuvistaenergy.com