UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO SECTION 13a-16 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of November 2002
Commission File Number: 0-28466
HURRICANE HYDROCARBONS LTD.
(Exact name of registrant as specified in its charter)
Suite 1460, Sun Lite Plaza, North Tower, 140-4th Avenue S.W.,
Calgary, Alberta T2P 3N3
------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F Form 40-F X
---- ----
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1)._____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in
paper of a Form 6-K if submitted solely to provide an attached annual report to
security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):_____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in
paper of a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
----- -----
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-______
[HURRICANE HYDROCARBONS LTD. LOGO]
Q3 Interim Report
AS AT NOVEMBER 30, 2002
Message to the shareholders
HIGHLIGHTS
Hurricane's Third Quarter 2002 highlights included the following:
- Earnings of $60.5 million ($0.74 per share)
- Cash flow of $77.9 million ($0.96 per share)
- Production of 143,175 barrels of oil per day, up 37% versus 2001
- Agreement reached with KazMunaiGas on participation in the QAM pipeline
- Record export sales being realized
- Downstream name changed from Shymkentnefteorgsyntez to Hurricane Oil
Products
- Cancelled 366,461 shares under the Normal Course Issuer Bid program
FINANCIAL REVIEW
(IN MILLIONS OF US$ EXCEPT PER SHARE AMOUNTS) NINE MONTHS ENDED SEPT 30 THREE MONTHS ENDED SEPT 30
----------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------
Gross Revenue 568.7 474.8 248.0 160.7
Net income 117.4 146.3 60.5 46.5
Per share (basic) 1.45 1.83 0.74 0.58
Per share (diluted) 1.39 1.73 0.71 0.55
Cash flow 158.2 167.3 77.9 53.8
Per share (basic) 1.95 2.09 0.96 0.67
Per share (diluted) 1.87 1.98 0.92 0.64
Weight Average Shares Outstanding
Basic 81,042,900 79,875,296 81,301,955 79,994,874
Diluted 84,483,117 84,461,557 84,742,172 84,657,926
Shares Outstanding at End of Period 81,041,485 80,106,005 81,041,485 80,106,005
UPSTREAM OPERATIONS REVIEW
PRODUCTION
During the third quarter of 2002, Hurricane's production volumes totaled
13.17 million barrels or an average of 143,175 barrels of oil per day
("bopd") representing a 37.2% increase over the third quarter 2001 production
of 104,379 bopd and a 21.5% increase over the second quarter 2002 production
rates of 117,844 per bopd. Record export sales combined with enhanced
performance from all fields lead to
2
these increases. Production during the last week in September averaged
144,000 bopd and increased to 154,000 bopd by mid October. Average production
for the nine months to September 30, 2002 was 128,203 bopd, up 31.1% over the
nine months of 2001.
Currently, Hurricane has 8 service rigs in operation that are contributing to
the ongoing enhancement of daily production.
Further development and production enhancement of the Akshabulak field,
operated by Kazgermunai ("KGM"), is being pursued with the German joint
venture partners. To date, no resolution has been achieved.
Hurricane's operations are proceeding according to plan. The average yearly
production for 2002 is anticipated to be approximately 135,000 bopd with a
year-end exit production rate of 156,000 bopd.
KUMKOL FIELDS FACILITIES
Two new South Kumkol freewater knockout facilities, commissioned in early
October, relieve water handling issues at the main central processing
facility, thereby increasing production. The facilities are now handling some
275,000 barrels of fluid per day with crude oil production of 116,000 bopd.
In the third quarter of 2002, Kumkol South production increased by 12% to
65,900 bopd versus 58,750 bopd in the second quarter of 2002.
South Kumkol continues to exceed production expectations. With 21 wells now
on production, all but one with artificial lift pumps, daily production has
increased to 24,000 bopd versus 18,400 bopd in the second quarter of this
year, a 30% increase. Current production is averaging 28,500 bopd.
GAS UTILIZATION PROJECT
The 55-megawatt power plant project at Kumkol is more than 60% completed. It
is on target for commissioning in the second quarter of 2003. Foundations for
major equipment have been completed and the equipment is due to arrive in
October. The cost of the project is anticipated to be approximately $32
million. To date, almost $22 million has been committed.
EXPLORATION
Further exploration and appraisal of the North Nurali field, discovered by 2
wells earlier this year, will be conducted once 3D seismic is obtained. A
comprehensive drilling and testing program is being developed on expected 3D
results to be started early in the new year. In addition, one of the original
leads to the East of North Nurali, Lead I, requires 3D seismic to optimize
the well location. The 3D seismic will not be completed until early 2003.
Follow-up prospects are being developed based on the encouraging results to
date. New well information, sample and study data are being incorporated into
the basin model.
The sixth well of the exploration program has been reassessed and needs to be
drilled to a depth beyond the capabilities of the current drilling unit.
Consequently, an alternative rig is required that is capable of drilling to
depths of 4,000 metres. It was always Hurricane's intent to share this new
high-grade rig and the associated high mobilization and demobilization costs
with the KGM Joint Venture for its drilling campaign. Unfortunately, because
KGM has postponed the enhancement program of the Akshabulak field, the unit
has not been mobilized to date. It is conceivable that Hurricane's deep lead
well will be deferred into the 2003 exploration program.
APPRAISAL AND DEVELOPMENT DRILLING
Additional production testing continued in the QAM fields (Qyzylkiya, Aryskum
and Maybulak). The combined production rate for all three fields has
increased by 44% to 15,900 bopd compared to 11,000 bopd in the second
quarter. This production is delivered from 23 wells. The QAM field's year to
date average production is 11,700 bopd.
The East Kumkol development program proceeds. Government approval of reserves
has been obtained. Production contract and license agreements are being
developed. Production has temporarily ceased pending these approvals and
Joint Venture agreements with Turgai Petroleum as the reservoir extends onto
their license.
The 2002, 38 well drilling program of the Turgai Petroleum joint venture has
been completed. Following encouraging results, an additional 17 wells will be
added to the 2002 drilling program. Gross production has increased by 20% to
49,800 bopd versus the 41,400 bopd in the second quarter of 2002.
3
The gross production of the KGM joint venture fields was 25,000 bopd in the
third quarter versus 17,500 bopd in the second quarter of 2002.
The German partners continue to question the benefits of an accelerated
development program and consequently, the drilling plan for these assets is
limited to 5 new wells in 2002.
Overall, in the first nine months of 2002, Hurricane participated in the
drilling of 50 new wells. An additional 22 wells will be drilled in the
fourth quarter of 2002.
QAM PIPELINE
On October 16, 2002, Hurricane received confirmation of approval from the
Kazakhstan Government to proceed with the construction of the 177-kilometre
QAM pipeline connecting Kumkol to a rail loading station in Dzhusaly via the
QAM fields. KazMunaiGas and Hurricane will fund and hold equal working
interest in the project from Aryskum to Dzhusaly. Kaztransoil, an affiliate
of KasMunaiGas, will be the technical operator, under a service contract, of
the QAM pipeline whose initial capacity will be 100,000 bopd. The project is
scheduled for construction completion in the second quarter of 2003 with
commissioning to occur in the third quarter of 2003.
DOWNSTREAM MARKETING, TRADING AND REFINING
CRUDE TRADING AND TRANSPORTATION
Crude export sales volumes continued to rise showing an 11% increase versus
the second quarter despite the uninterrupted operation of the refinery during
the third quarter. Shipments from the loading station at Tekesu also
continued to improve, recording a 10% increase against the second quarter.
The quarter closed with record export shipments averaging 90,179 bopd (11,642
tonnes per day) in September an improvement of 22% against the average for
the second quarter. This growth in shipments through Tekesu has continued
into early October with shipments of about 96,825 bopd (12,500 tonnes per
day). Recently, loading at Tekesu has repeatedly reached levels of 139,430
bopd (18,000 tonnes per day).
The improvement in crude export shipments has been as a result of an increase
in the number of leased rail cars under our control together with greater
access to the Atyrau-Samara pipeline. The number of leased rail cars in our
control continues to grow and currently stands at around 800 crude cars and
will be in excess of 3,000 next year. Access to Atyrau-Samara has improved
over the last few months and in September, this route accounted for 40% of
the crude oil shipped for export by Hurricane Kumkol Munai ("HKM"). The
management of KazMunaiGas has assured HKM that there is a capacity of 775,000
barrels per month (100,000 tonnes per month) available for HKM to use until
the end of this year with the exception of October when maintenance work is
required to the discharge facilities at Atyrau. More recently, the Ministry
of Energy in Kazakhstan has assured Hurricane of equitable and independent
access to Atyrau-Samara and the port of Aktau. The potential for greater
access to these export routes in future months exists and there is capacity
to handle future planned production increases.
The increase in crude exports has helped reduce the crude oil inventories
held at Kumkol and Tekesu although this has been partially offset by
increases in the volume of oil in transit and awaiting loading at ports under
Free On Board ("FOB") contracts.
Crude oil exports were sold Cost, Insurance and Freight ("CIF") into Italian
refineries, FOB Batumi, FOB Odessa via Atyrau-Samara, Carriage Paid To
("CPT") Novorossiisk and Delivered At Frontier ("DAF") China albeit these
Chinese volumes remain relatively small. Other sales were made on a Freight
Carriage Assurance ("FCA") basis to the traditional route of Aktau.
Crude prices remained robust on the back of the potential crisis surrounding
Iraq and lower than anticipated US crude stocks. The average of the day's
dated Brent price started the quarter at $25.71 per barrel and finished the
quarter at $28.875 per barrel. Volatility remained high with a dated Brent
swing of $4.46 per barrel during the quarter and dated prices ranging from a
low of $25.08 and a high of $29.54 during the quarter. Sweet crude
differentials improved against last quarter with Tengiz CIF Mediterranean
quotes recovering to a 10 cent premium to Brent in August although slipping
during September to a 20 cent discount. Nevertheless, this is still an
improvement to the deep discounts seen in the second quarter. Kumkol CIF
Mediterranean meanwhile is currently trading 30 to 40 cents per barrel better
than Tengiz. Part of this improvement will
4
be seen in the fourth quarter as FOB sales shipped in September are concluded.
REFINED PRODUCT MARKETING AND REFINING
During the third quarter of 2002, the Shymkent refinery processed 7.1 million
barrels or 77,173 bopd, of which 4,347 bopd was custom-refined for third
parties, up 33% versus 5.3 million barrels or 58,392 bopd, none of which was
custom-refined for third parties in the second quarter of 2002. This was in
line with the 7.2 million barrels or 78,695 bopd that was processed in the
third quarter of 2001. The variation between the second and third quarters of
2002 is primarily due to the maintenance shutdown that took place in the
second quarter.
The yield improvements as a result of the work carried out during the annual
maintenance turnaround were proven in the third quarter. Mazut yield was
reduced to 31% for the quarter with a consequential increase in the yield of
higher value products. A project is underway at the refinery to produce
Vacuum Gasoil which will further reduce mazut yield and thereby improve
refining economics.
Refined product sales increased in the third quarter primarily as a
consequence of the maintenance shutdown which reduced the production and
sales volumes in the second quarter. Refined product prices continued the
recovery started in the second quarter which when applied to the higher sales
volumes improved sales revenues by 62% against the previous quarter. Despite
these improvements refined product netbacks remain at a discount to the crude
export alternative.
ORGANIZATIONAL CHANGES
At the last Annual General Meeting of Shymkentnefteorgsyntez ("ShNOS"),
Hurricane's downstream affiliate, shareholders resolved to approve a name
change from ShNOS to Hurricane Oil Products. This name change results in a
unified branding of all of Hurricane's affiliates.
NORMAL COURSE ISSUER BID
As of September 30, 2002, Hurricane had purchased 379,961 shares and
cancelled 366,461 shares. The Normal Course Issuer Bid approval allows
Hurricane to purchase up to 5.25 million shares during the period August 7,
2002 to August 6, 2003.
MANAGEMENT UPDATES
Hurricane is pleased to announce that Mr. Marlo Thomas, President of
Hurricane Kunkol Munai and Hurricane Oil Products, has also been appointed
Executive Vice President of the Corporation.
Effective October 1, 2002, Mr. Dermot Hassett, Hurricane Kumkol Munai Vice
President Marketing and Trading was appointed Vice President Marketing and
Transportation of the Corporation. Mr. Robert Goldsmith has replaced Mr.
Hassett as Vice President Marketing and Trading, Hurricane Kumkol Munai.
Respectfully submitted on behalf of the Board of Directors,
(signed)
Bernard F. Isuatier
Chairman of the Board, President and Chief Executive Officer
October 31, 2002
5
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
Interim Consolidated Statements.
The third quarter of 2002, saw sustained production growth and a period of
uninterrupted production. Production grew by 21.5% over the second quarter of
2002. Average production for the nine months to September 30, 2002 was
128,203 bopd as compared to 97,770 bopd for the same period in 2001.
ALL NUMBERS ARE IN US DOLLARS UNLESS OTHERWISE INDICATED.
The following discussion covers the third quarter and nine months of 2002 and
2001.
For the quarter ended September 30, 2002, the Corporation generated $60.5
million of net income and $77.9 million of cash flow. This represents basic
net income per share of $0.74 and basic cash flow per share of $0.96 for the
quarter. The comparable figures for 2001 were net income of $46.5 million or
$0.58 basic net income per share and $53.8 million of cash flow or $0.67
basic cash flow per share.
Inventory volumes relating to in transit FOB sales decreased from 1.1 million
bbls at the end of the second quarter to 895,000 bbls at the end of
September. This release of inventory has increased net income for the third
quarter by approximately $3.3 million as compared with the second quarter.
The Corporation has reclassified sales of $8.6 million and associated volumes
of 147,000 tonnes (1,139,000 bbls) from domestic sales to crude oil and
refined product purchases. This adjustment was made as it more appropriately
reflects the underlying transaction in which royalty crude oil originally
delivered in kind, was repurchased from and then later resold to the
Authorities at their request. This adjustment is reflected in the following
tables and accounts for the negative domestic sales.
REVENUE, PRODUCTION AND SALES
UPSTREAM
Upstream production averaged 143,175 bopd for the third quarter of 2002
compared to 104,379 bopd for the same period in 2001. The tables below set
out total production, acquisitions and sales from Upstream operations.
PRODUCTION
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED Three months ended
SEPTEMBER 30, 2002 September 30, 2001
(MMBBLS) (MMbbls)
----------------------------------------------------------------------------------------------------------
Opening inventory of crude oil 1.59 0.26
Production 13.17 9.60
Crude oil purchased from third parties (0.70) -
Crude oil purchased from joint ventures (50%) 1.57 -
Sales or transfers (14.35) (9.26)
Pipeline losses (0.01) (0.01)
----------------------------------------------------------------------------------------------------------
Closing inventory of crude oil 1.27 0.56
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED Nine months ended
SEPTEMBER 30, 2002 September 30, 2001
(MMBBLS) (MMbbls)
----------------------------------------------------------------------------------------------------------
Opening inventory of crude oil 0.70 0.39
Production 35.00 26.69
Crude oil purchased from third parties 0.24 -
Crude oil purchased from joint ventures (50%) 2.12 -
Sales or transfers (36.74) (26.49)
Pipeline losses (0.05) (0.03)
----------------------------------------------------------------------------------------------------------
Closing inventory of crude oil 1.27 0.56
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
6
SALES OF CRUDE OIL
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------------------------
2002 2002 2001 2001
(MMBBLS) (%) (MMbbls) (%)
----------------------------------------------------------------------------------------------------------------------
Crude oil exports 7.47 52.1% 4.18 45.0%
Crude oil transferred to Downstream 6.69 46.6% 2.93 31.5%
Crude oil transferred to Downstream by joint ventures (50%) - - 1.29 13.9%
Royalty payments 0.83 5.8% 0.69 7.4%
Crude oil domestic sales (0.64) (4.5%) 0.20 2.2%
----------------------------------------------------------------------------------------------------------------------
Total crude oil sales or transfers 14.35 100.0% 9.29 100.0%
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------------------------
2002 2002 2001 2001
(MMBBLS) (%) (MMbbls) (%)
----------------------------------------------------------------------------------------------------------------------
Crude oil exports 18.67 50.8% 12.84 48.5%
Crude oil transferred to Downstream 12.51 34.1% 8.79 33.2%
Crude oil transferred to Downstream and exported - - 0.15 0.5%
Crude oil transferred to Downstream by joint ventures (50%) 3.06 8.3% 3.36 12.7%
Royalty payments 2.24 6.1% 0.69 2.6%
Crude oil domestic sales 0.26 0.7% 0.66 2.5%
----------------------------------------------------------------------------------------------------------------------
Total crude oil sales or transfers 36.74 100.0% 26.49 100.0%
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Total consolidated revenue from crude oil sales amounted to $143.8 million in
the third quarter of 2002 and $64.3 million in the third quarter of 2001. The
improvement resulted from the increased volumes of sales from 5.1 million
barrels at an average price of $12.69 per barrel in the third quarter of 2001
to 7.7 million barrels at an average price of $18.78 per barrel in the third
quarter of 2002.
Total consolidated revenue from crude oil sales amounted to $319.6 million in
the first nine months of 2002 as compared to $193.3 million in the first nine
months of 2001. The increase is due to an improvement in sales volumes from
14.3 million barrels at an average price of $13.48 per barrel in the nine
months of 2001 to 21.2 million barrels at an average price of $15.10 per
barrel in the period in 2002.
HOP is not expected to export crude oil in 2002.
In the third quarters and nine months of both 2002 and 2001, the crude oil
export sales included sales to third parties within Kazakhstan, normally at
the rail terminal at Tekesu, adjacent to the Shymkent Refinery. The price
achieved for these sales are shown net of a discount to the prevailing Brent
at the time of the sale. The discount reflects a number of factors, the most
significant of which relates to rail transportation costs. Title to the crude
oil passes to the buyer at the point of loading the crude into rail cars.
Within the tables noted below, these sales are shown as "Crude sales sold
FCA".
In addition, 46% of crude oil export sales made in the third quarter of 2002
were sold on other terms to Black Sea ports and to China. No crude oil was
sold on terms other than FCA in the first three quarters of 2001. Under FOB
(Free on Board) sales, the Corporation arranges all transportation to the
port and assumes the obligations for this transportation. The sale price
therefore reflects the Brent price plus or minus a quality differential to
the Black Sea Port at the time of sale. With this type of sale, title to the
crude does not pass to the buyer until the crude is loaded into an oil tanker
in the respective Black Sea Port. Sales contracts were also concluded on DAF
(Delivered at Frontier) terms, where title to the crude passes to the buyer
at the border and CPT (Carriage paid to) terms where title passes at the
final destination. Within the tables below, these sales are shown as "Crude
sales sold FOB".
7
Total revenue can be analysed as follows:
CRUDE OIL REVENUE THREE MONTHS ENDED SEPTEMBER 30, 2002
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
QUANTITY SOLD IN NET REALIZED PRICE REVENUE
(MMBBLS) ($ PER BBL) ($000'S)
---------------------------------------------------------------------------------------------
Crude sales sold FCA 2.89 15.36 44,397
Crude sales sold FOB 3.44 22.42 77,124
Kazgermunai export sales 1.14 15.11 17,225
Royalty payments 0.83 10.84 8,995
Crude oil domestic sales (0.64) 6.13 (3,921)
---------------------------------------------------------------------------------------------
Total 7.66 18.78 143,820
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
CRUDE OIL REVENUE THREE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
QUANTITY SOLD IN NET REALIZED PRICE REVENUE
(MMBBLS) ($ PER BBL) ($000'S)
---------------------------------------------------------------------------------------------
Crude sales sold FCA 3.65 11.83 43,168
Royalty payments 0.69 12.02 8,294
Kazgermunai export sales 0.53 21.54 11,414
Crude oil domestic sales 0.20 7.34 1,468
---------------------------------------------------------------------------------------------
Total 5.07 12.69 64,344
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
CRUDE OIL REVENUE NINE MONTHS ENDED SEPTEMBER 30, 2002
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
QUANTITY SOLD IN NET REALIZED PRICE REVENUE
(MMBBLS) ($ PER BBL) ($000'S)
---------------------------------------------------------------------------------------------
Crude sales sold FCA 11.07 13.19 145,984
Crude sales sold FOB 5.72 22.18 126,851
Kazgermunai export sales 1.88 14.12 26,540
Royalty payments 2.24 8.08 18,102
Crude oil domestic sales 0.26 8.19 2,129
---------------------------------------------------------------------------------------------
Total 21.17 15.10 319,606
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
CRUDE OIL REVENUE NINE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
QUANTITY SOLD IN NET REALIZED PRICE REVENUE
(MMBBLS) ($ PER BBL) ($000'S)
---------------------------------------------------------------------------------------------
Crude sales sold FCA 11.25 12.93 145,500
Royalty payments 0.69 12.02 8,293
Kazgermunai export sales 1.74 18.96 32,999
Crude oil domestic sales 0.66 9.92 6,550
---------------------------------------------------------------------------------------------
Total 14.34 13.48 193,342
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
The average FCA discount for exports from Shymkent, to Brent crude oil price,
for the three quarters of 2002 and 2001 for Hurricane Kumkol Munai OJSC ("HKM")
and Turgai sales only, is set out below.
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
2002 2001
($/BBL) ($/bbl)
---------------------------------------------------------------------------------------------
Quarter to March 31 11.81 12.50
---------------------------------------------------------------------------------------------
Quarter to June 30 12.18 11.95
---------------------------------------------------------------------------------------------
Quarter to September 30 12.28 11.93
---------------------------------------------------------------------------------------------
Average year to date 12.08 12.13
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
The deterioration in the FCA differential during the second quarter of 2002
resulted primarily from the movement in the price of Kumkol crude as related
to Brent crude. For the third quarter, the deterioration is due to the
devaluation of the US dollar to the Swiss Franc as transportation tariffs in
Kazakhstan are denominated in Swiss Francs.
8
DOWNSTREAM
The comparative numbers in the tables include the first nine months and the
third quarter for the years 2002 and 2001 respectively.
The Refinery at Shymkent has a total design operating capacity of 6.6 million
tonnes per year or the equivalent of approximately 12.8 mmbbls per quarter.
The Refinery operated in the third quarter of 2002 at a reduced capacity
level of 52% or 6.7 mmbbls. The comparative numbers for the third quarter of
2001 were 43% or 5.6 mmbbls.
The crude oil feedstock for the Refinery is primarily acquired from Upstream
operations but purchases are also made from third parties. The table below
sets out the source of purchases and the movement in feedstock supplies.
PURCHASE AND ACQUISITION OF FEEDSTOCK THREE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2002 2001
(MMBBLS) (MMbbls)
-------------------------------------------------------------------------------
Acquired from HKM 6.69 2.95
Purchased from joint ventures (100%) - 2.59
Purchased from third parties - -
-------------------------------------------------------------------------------
Total feedstock acquired 6.69 5.54
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2002 2001
(MMBBLS) (MMbbls)
-------------------------------------------------------------------------------
Acquired from HKM 12.51 9.18
Purchased from joint ventures (100%) 6.11 6.73
Purchased from third parties - 0.36
-------------------------------------------------------------------------------
Total feedstock acquired 18.62 16.27
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
INVENTORY LEVELS OF FEEDSTOCK THREE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2002 2001
(MMBBLS) (MMbbls)
-------------------------------------------------------------------------------
Opening inventory of crude oil feedstock 0.08 0.16
Purchase and acquisition of feedstock 6.69 5.54
Recoverable feedstock from traps - -
Feedstock sold for export - -
Feedstock refined into product (6.69) (5.56)
-------------------------------------------------------------------------------
Closing inventory of feedstock 0.08 0.14
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2002 2001
(MMBBLS) (MMbbls)
-------------------------------------------------------------------------------
Opening inventory of crude oil feedstock 0.34 0.08
Purchase and acquisition of feedstock 18.62 16.27
Recoverable feedstock from traps 0.04 0.02
Feedstock sold for export - (0.15)
Feedstock refined into product (18.92) (16.08)
-------------------------------------------------------------------------------
Closing inventory of feedstock 0.08 0.14
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
9
In addition to acquiring feedstock to refine into products, the Refinery from
time to time acquires refined product for resale. The table below sets out
the movement in inventory of refined product.
INVENTORY MOVEMENT OF REFINED PRODUCT THREE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2002 2001
(MM TONNES*) (MM tonnes*)
-------------------------------------------------------------------------------
Opening inventory of refined product 0.16 0.11
Refined product from feedstock 0.81 0.67
Refined product acquired 0.03 -
Refined product sold (0.87) (0.66)
Refined product internal use & yield losses - -
-------------------------------------------------------------------------------
Closing inventory of refined product 0.13 0.12
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
* The inventory of products represents a mix of products for which no unique
conversion from barrels to tonnes exists. The standard conversion used for
crude oil by the Corporation is 7.746 barrels to the tonne.
INVENTORY MOVEMENT OF REFINED PRODUCT NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2002 2001
(MM TONNES*) (MM tonnes*)
-------------------------------------------------------------------------------
Opening inventory of refined product 0.21 0.13
Refined product from feedstock 2.29 1.96
Refined product acquired 0.09 0.08
Refined product sold (2.44) (2.03)
Refined product internal use & yield losses (0.02) (0.02)
-------------------------------------------------------------------------------
Closing inventory of refined product 0.13 0.12
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
* The inventory of products represents a mix of products for which no unique
conversion from barrels to tonnes exists. The standard conversion used for
crude oil by the Corporation is 7.746 barrels to the tonne.
The feedstock is refined into a number of products sold to derive the revenue of
refined products. Refined product sales revenue for the third quarter of 2002
were $101 million and for the third quarter of 2001 $90 million.
The table below sets out product sold for the nine months and third quarters of
2002 and 2001, the average price achieved and the total refined products
revenue.
REFINED PRODUCT REVENUE THREE MONTHS ENDED SEPTEMBER 30, 2002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PRODUCT PRODUCED TONNES AVERAGE PRICE REVENUE
SOLD ($/TONNE) ($000'S)
--------------------------------------------------------------------------------
Gasoline 185,886 178.29 33,141
Diesel 313,341 126.30 39,575
Heavy fuel oil (Mazut) 250,212 49.31 12,339
LPG 30,117 78.06 2,351
Jet fuel 57,636 206.66 11,911
Total self refined 837,192 118.63 99,317
Resale of purchased refined products 36,203 47.34 1,714
--------------------------------------------------------------------------------
Total refined product sales 873,395 115.68 101,031
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
10
REFINED PRODUCT REVENUE THREE MONTHS ENDED SEPTEMBER 30, 2001
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
PRODUCT PRODUCED TONNES AVERAGE PRICE REVENUE
SOLD ($/TONNE) ($000'S)
--------------------------------------------------------------------------------------
Gasoline 166,064 221.11 36,719
Diesel 211,246 169.35 35,774
Heavy fuel oil (Mazut) 220,292 44.79 9,867
LPG 32,443 89.66 2,909
Jet fuel and kerosene 20,263 228.00 4,620
Total self refined product 650,308 138.22 89,889
Resale of purchased refined products 1,333 66.02 88
--------------------------------------------------------------------------------------
Total refined product sales 651,641 138.08 89,977
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
REFINED PRODUCT REVENUE NINE MONTHS ENDED SEPTEMBER 30, 2002
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
PRODUCT PRODUCED TONNES AVERAGE PRICE REVENUE
SOLD ($/TONNE) ($000'S)
--------------------------------------------------------------------------------------
Gasoline 571,753 134.80 77,075
Diesel 760,029 117.85 89,569
Heavy fuel oil (Mazut) 786,785 39.96 31,443
LPG 86,607 74.88 6,485
Jet fuel 142,241 213.87 30,421
Total self refined 2,347,415 100.11 234,993
Resale of purchased refined products 89,025 61.59 5,483
--------------------------------------------------------------------------------------
Total refined product sales 2,436,440 98.70 240,476
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
REFINED PRODUCT REVENUE NINE MONTHS ENDED SEPTEMBER 30, 2001
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
PRODUCT PRODUCED TONNES AVERAGE PRICE REVENUE
SOLD ($/TONNE) ($000'S)
--------------------------------------------------------------------------------------
Gasoline 453,923 205.49 93,277
Diesel 819,848 82.35 67,511
Heavy fuel oil (Mazut) 270,879 53.70 14,545
LPG 386,834 181.83 70,338
Jet fuel and kerosene 38,652 234.71 9,072
Total self refined product 1,970,136 129.30 254,763
Resale of purchased refined products 69,628 144.07 10,031
--------------------------------------------------------------------------------------
Total refined product sales 2,039,764 129.81 264,774
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
In addition to revenue generated from the refining and sale of product derived
from acquired feed stock, the Refinery also refined crude on behalf of third
parties for which it derives a fee. During the third quarter 2002 the Refinery
tolled 0.4 million barrels for third parties (1.7 million barrels in the third
quarter of 2001). Third party tolling volumes decreased in 2002 as crude
producers elected to export their volumes.
11
The table below sets out the total quantity of oil processed into product and
the average fee charged.
2002
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
TOLLER'S VOLUMES PROCESSING FEE PROCESSING FEES
PROCESSED ($/TONNE) EARNED
(TONNES) ($000'S)
-------------------------------------------------------------------------------------------------
FIRST QUARTER 2002 91,521 15.64 1,431
SECOND QUARTER 2002 - - 3
THIRD QUARTER 2002 43,713 15.51 678
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
2001
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
TOLLER'S VOLUMES PROCESSING FEE PROCESSING FEES
PROCESSED ($/TONNE) EARNED
(TONNES) ($000'S)
-------------------------------------------------------------------------------------------------
First quarter 2001 214,526 16.31 3,498
Second quarter 2001 109,018 16.99 1,852
Second quarter 2001 216,247 14.91 3,224
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
PRODUCTION EXPENSES
Production expenses relate to the cost of producing crude oil in the Upstream
operations and were $15.3 million in the third quarter of 2002 compared to $10.4
million in the third quarter of 2001 ($41.7 million in nine months of 2002 and
$29.7 million in nine months of 2001). Based on the number of barrels of oil
produced, these costs are $1.16 per barrel for the third quarter 2002 and $1.08
per barrel for the third quarter 2001 ($1.19 per barrel for nine months of 2002
and $1.11 per barrel for nine months of 2001).
The absolute increase in cost between the third quarter 2002 and the similar
period in 2001 resulted from the increase in production of 8.3 million barrels
volumes for the nine months ended September 30, 2002 or 31% and an increase of
3.6 million barrels or 37% for the third quarter of 2002 as compared to 2001.
There was also additional maintenance services required due to increasing
production of formation water.
ROYALTIES AND TAXES
The royalty expense for the third quarter of 2002 was $16.0 million, which
represented an effective overall percentage of 10.6%. For the third quarter of
2001 royalty expense was $12.6 million and the overall percentage was 11.0%.
The royalty expense for the nine months of 2002 was $31.5 million, which
represented an effective overall percentage of 8.6%. For the nine months of
2001 royalty expense was $27.5 million and the overall percentage was 8.3%.
In all cases the royalty rate is based on the levels of production.
The table below indicates the royalty paid in kind and cash in the first,
second and the third quarter of 2002 and 2001 ($000's).
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Quarter ending 2002 2002 2002 2001 2001 2001
ROYALTY IN KIND CASH ROYALTY TOTAL ROYALTY Royalty in Kind Cash Royalty Total Royalty
----------------------------------------------------------------------------------------------------------------------
March 31 2,972 3,738 6,710 - 5,589 5,589
June 30 7,456 1,295 8,751 6,680 2,634 9,314
September 30 12,723 3,320 16,043 11,103 1,493 12,596
----------------------------------------------------------------------------------------------------------------------
Total Royalty 23,151 8,353 31,504 17,783 9,716 27,499
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
The total royalty and tax expense for the third quarter of 2002 was $21.5
million compared to $14.5 million for the third quarter of 2001. Other taxes
incurred by the Corporation in the third quarter of 2002 amounted to $5.5
million ($1.9 million in the third quarter of 2001), of which $3.7 million is
excise taxes paid on refined products.
For the nine months of 2002 these other taxes were $12.2 million ($3.2 million
in nine months of 2001), out of which $5.1 million relates to tax assessments as
more fully described in Note 12 of the consolidated interim financial
statements.
12
TRANSPORTATION COSTS
Transportation costs are made up of the costs of shipping crude oil from the
central processing facility located at the Kumkol South Field (the "CPF") to the
Shymkent Refinery, the costs of trucking crude oil from the QAM Fields to the
CPF and railway transportation from the Shymkent Refinery under FOB and DAF
sales contracts. Transportation costs also include transportation of crude
produced by our Kazgermunai joint venture to its export customers.
The pipeline tariff from the CPF to Shymkent depends on the ultimate destination
of the crude oil. The tariff charged in respect of crude oil destined for export
is $1.41 per barrel, whereas the cost related to crude oil processed in the
Refinery is $0.84 per barrel.
The table below sets out the constituent components of transportation costs.
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
THIRD QUARTER 2002 Third quarter 2001
($000'S) ($000's)
----------------------------------------------------------------------------------------------------
Pipeline costs 16,020 9,273
Kazgermunai transportation costs 2,888 2,469
Railway transportation 29,427 582
Other related transportation costs 1,859 -
----------------------------------------------------------------------------------------------------
Total 50,194 12,324
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
NINE MONTHS OF 2002 Nine months of 2001
($000'S) ($000's)
----------------------------------------------------------------------------------------------------
Pipeline costs 39,923 26,255
Kazgermunai transportation costs 5,611 6,381
Railway transportation 50,743 1,582
Other related transportation costs 3,854 -
----------------------------------------------------------------------------------------------------
Total 100,131 34,218
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
The absolute increase in pipeline costs is due to the increased volumes of crude
oil sold in 2002 versus 2001 for export, which attracts a higher tariff. For the
three months ended September 30, 2002 exports volumes were 3.3 million barrels
or 79% higher than for the corresponding period in 2001. For the nine months
ended September 30, 2002 export volumes were 5.8 million barrels or 45% higher
than the corresponding period of 2001. Railway transportation increased as
compared to 2001 for the three and nine months period ending September 30, 2002
due to the shift to FOB/DAF sales. Other related transportation costs are mainly
trucking costs incurred to transport the QAM field crude oil to the central
processing facility located at Kumkol.
REFINING COSTS
Refining costs represent the direct costs related to processing all crude oil
including tollers' volumes. The total refining costs in the third quarter of
2002 were $5.3 million or $0.75 per barrel of crude oil processed. For the third
quarter of 2001 the costs were $4.7 million or $0.65 per barrel. The comparative
amounts for the nine months 2002 and 2001 were $17.6 million ($0.88 per barrel)
and $14.6 million ($0.71 per barrel), respectively.
The increase on a per barrel basis was brought about by the reclassification of
the cost of tolling from crude oil and refined product purchases to refining
cost, which accounted for $1.3 million of the increase between quarters and $3.3
million of the increase between the 9 month periods.
13
CRUDE OIL AND REFINED PRODUCT PURCHASES
Crude oil and refined product purchases represent the cost of purchasing crude
oil for the Refinery from third parties, as well as refined product for resale.
The decrease for the quarter and the nine-month period as compared to the same
periods for 2001 are a result of the reclassification of domestic sales as
previously described, a decrease in volumes purchased from third parties and the
reclassification of tolling costs from Crude oil and refined product purchases
to refining costs as described in the section entitled Refining Costs.
SELLING EXPENSES
Selling expenses in the third quarter of 2002 were $8.1 million compared to $4.5
million in the third quarter of 2001 and $18.7 million for the nine months of
2002 compared to $15.1 million for the similar period of 2001.
The absolute increase in the third quarter and in the first nine months of 2002
compared to the same periods in 2001 is the direct result of increased sales
volumes. The Corporation sold 15.3 million barrels of crude and refined products
during the third quarter of 2002 (10.1 million barrels in the third quarter of
2001) and 41.5 million barrels of crude and refined products during the first
nine months of 2002 (30.2 million barrels in the first nine months of 2001).
GENERAL AND ADMINISTRATIVE
The table below analyzes total general and administrative costs between
Upstream, Downstream and Corporate. In the case of Upstream and Downstream the
general and administrative costs are also reflected on a per barrel basis.
THIRD QUARTER 2002
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
GENERAL AND PER BARREL OF OIL
ADMINISTRATIVE PRODUCED OR
($000'S) PROCESSED*
($/BBL)
-------------------------------------------------------------------------------------------------
Upstream 8,820 0.67
Downstream 4,391 0.62
Corporate 1,229
-------------------------------------------------------------------------------------------------
Total 14,440
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
THIRD QUARTER 2001
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
General and Per barrel of oil
Administrative produced or
($000's) processed*
($/bbl)
-------------------------------------------------------------------------------------------------
Upstream 5,172 0.54
Downstream 6,405 0.89
Corporate 1,218
-------------------------------------------------------------------------------------------------
Total 12,795
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
* Including toller's volumes
14
NINE MONTHS OF 2002
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
GENERAL AND PER BARREL OF OIL
ADMINISTRATIVE PRODUCED OR
($000'S) PROCESSED*
($/BBL)
-------------------------------------------------------------------------------------------------
Upstream 24,985 0.71
Downstream 11,815 0.59
Corporate 5,470
-------------------------------------------------------------------------------------------------
Total 42,270
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
NINE MONTHS OF 2001
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
General and Per barrel of oil
Administrative produced or
($000's) processed*
($/bbl)
-------------------------------------------------------------------------------------------------
Upstream 17,501 0.66
Downstream 14,792 0.73
Corporate 3,062
-------------------------------------------------------------------------------------------------
Total 35,355
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
* Including toller's volumes
The increase in the third quarter of 2002 of $1.6 million and $6.9 million for
the nine months ending September 30, 2002 as compared to the same periods in
2001 is due to the increased activity in upstream operations. There has also
been a change in 2002 in the method of allocating centrally incurred general and
administrative costs whereby a higher percentage of costs are allocated to
upstream.
NET BACK ANALYSIS
Set out below are the details of the average net back achieved in the third
quarter of 2002 and nine months of 2002 for export sales and sales derived from
the refining of the Company's own crude.
THIRD QUARTER 2002
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
CRUDE OIL EXPORTS OWN CRUDE OIL
($/BBL) REFINED AND SOLD
($/BBL)
-------------------------------------------------------------------------------------------------
Net sales price achieved 18.58 15.32
Transportation expense (5.95) (1.05)
Production and Refining costs (1.16) (1.91)
Royalty (1.60) (1.66)
Selling Costs (0.48) (0.74)
General and Administrative costs (0.67) (1.29)
Tax expense (2.53) (3.01)
-------------------------------------------------------------------------------------------------
Net Back 6.19 5.66
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
15
NINE MONTHS OF 2002
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
CRUDE OIL EXPORTS OWN CRUDE OIL
($/BBL) REFINED AND SOLD
($/BBL)
-------------------------------------------------------------------------------------------------
Net sales price achieved 16.03 12.92
Transportation expense (4.55) (1.02)
Production and Refining costs (1.19) (2.07)
Royalty (1.24) (1.25)
Selling Costs (0.21) (0.78)
General and Administrative costs (0.71) (1.30)
Tax expense (1.52) (2.30)
-------------------------------------------------------------------------------------------------
Net Back 6.61 4.20
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation and depletion has increased by $2.6 million in the third quarter of
2002 compared to the same period in 2001 (or by $4.4 million in the nine months
of 2002 compared to the same period in 2001). This increase is due to the
increase in production as compared to 2001 and capital additions in 2002. The
effect of these increases was partly offset by the increase in proved producing
reserves.
THIRD QUARTER 2002
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
DD&A DD&A
($000'S) ($/BBL*)
-------------------------------------------------------------------------------------------------
Upstream 8,351 0.63
Downstream 3,311 0.47
Corporate 24
-------------------------------------------------------------------------------------------------
Total 11,686
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
*Downstream includes toller's volumes
THIRD QUARTER 2001
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
DD&A DD&A
($000's) ($/bbl*)
-------------------------------------------------------------------------------------------------
Upstream 6,397 0.67
Downstream 2,424 0.33
Corporate 220
-------------------------------------------------------------------------------------------------
Total 9,041
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
*Downstream includes toller's volumes
NINE MONTHS OF 2002
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
DD&A DD&A
($000'S) ($/BBL*)
-------------------------------------------------------------------------------------------------
Upstream 20,163 0.58
Downstream 8,831 0.44
Corporate 70
-------------------------------------------------------------------------------------------------
Total 29,064
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
*Downstream includes toller's volumes
16
NINE MONTHS OF 2001
------------------------------------------------------------------------------
------------------------------------------------------------------------------
DD&A DD&A
($000's) ($/bbl*)
------------------------------------------------------------------------------
Upstream 17,167 0.64
Downstream 7,171 0.35
Corporate 280
------------------------------------------------------------------------------
Total 24,618
------------------------------------------------------------------------------
------------------------------------------------------------------------------
*Downstream includes toller's volumes
In accordance with Canadian and United States accounting standards, and to
provide comfort that anticipated future revenues are sufficient to cover the
capitalised costs of properties, the Corporation performs a quarterly
"ceiling test". The ceiling test for the quarter ended September 30, 2002
demonstrated that future net revenues exceed the carrying value of the
Upstream properties under the full cost method of accounting.
TAXATION
The Corporation is subject to a number of taxes in Kazakhstan including, but
not limited to, income taxes, excess profits taxes, excise taxes, land taxes,
property taxes, transportation taxes, and mandatory contributions to social
funds. Income is taxed at the Kazakhstani statutory rate of 30%. Excess
profit taxes have been negotiated with the Kazakhstani government in each
hydrocarbon contract. With respect to the Kumkol South, South Kumkol and QAM
fields, the Corporation is subject to excess profit tax at rates that vary
from 0 to 30% based on the cumulative internal rate of return. With respect
to Kumkol North (Turgai), the Corporation is subject to excess profit tax at
rates that vary from 0% to 50% based on the cumulative internal rate of
return. The Corporation has not incurred any excess profit tax with respect
to production from any of its fields and does not expect to incur a liability
for excess profit tax in 2002.
The Corporation is subject to excise tax on its domestic sales in Kazakhstan,
for crude oil from the South Kumkol field, at a rate of 7 euros per tonne and
Maybulak at a rate of 2 euros per tonne and from sales of gasoline at a rate
of $29.1 per tonne and for diesel at a rate of $3.2 per tonne.
Within the license agreements for the Corporation's Upstream oil licenses are
tax stability clauses that establish the tax regimes under which the
Corporation operates. These are fixed as of the date of signing the agreement
and remain in effect for the term of the agreement.
The total income tax charges for 2002 and 2001 are set out below.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
THIRD QUARTER 2002 Third quarter 2001
($000'S) ($000's)
------------------------------------------------------------------------------
Upstream 33,120 7,489
Downstream 3,638 13,191
Corporate 1,806 186
------------------------------------------------------------------------------
Total 38,564 20,866
------------------------------------------------------------------------------
------------------------------------------------------------------------------
NINE MONTHS 2002 Nine months 2001
($000'S) ($000's)
------------------------------------------------------------------------------
Upstream 53,120 21,031
Downstream 15,727 41,472
Corporate 2,171 1,175
------------------------------------------------------------------------------
Total 71,018 63,678
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Upstream tax charges have increased due to the increase in sales volumes and
in the price of crude oil.
The corporate tax expense relates mainly to taxes paid by Hurricane Overseas
Services, the company that provides services to the operating subsidiaries in
Kazakhstan.
17
CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents as at September 30, 2002 is $21.3
million held by the joint ventures.
CAPITAL EXPENDITURES
The table below provides a breakdown of capital expenditures in 2002 and 2001.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
THIRD QUARTER 2002 Third quarter 2001
($000'S) ($000's)
------------------------------------------------------------------------------
Upstream
Development wells 3,637 3,136
Facilities and equipment 33,277 23,632
Exploration 8,513 3,069
Downstream
Refinery HS&E 156 95
Refinery sustaining 653 450
Refinery return projects 650 446
Marketing & other 1,109 50
Corporate 61 400
------------------------------------------------------------------------------
Total Capital Expenditures 48,056 31,278
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
NINE MONTHS 2002 Nine months 2001
($000'S) ($000's)
------------------------------------------------------------------------------
Upstream
Development wells 10,860 5,681
Facilities and equipment 67,090 41,208
Exploration 16,931 5,233
Downstream
Refinery HS&E 627 294
Refinery sustaining 877 1,342
Refinery return projects 1,920 701
Marketing & other 3,037 356
Corporate 217 400
------------------------------------------------------------------------------
Total Capital Expenditures 101,559 55,215
------------------------------------------------------------------------------
------------------------------------------------------------------------------
MANAGING LIQUIDITY AND CAPITAL RESOURCES
The levels of cash, current assets and current liabilities at the balance
sheet dates for the quarters ended September 30 of 2002, June 30, 2002 and
March 31, 2002 and year ended December 31, 2001 are set out below.
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
AS AT AS AT AS AT As at
SEPTEMBER 30, 2002 JUNE 30, 2002 MARCH 31, 2002 December 31, 2001
($000'S) ($000'S) ($000'S) ($000's)
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 162,246 131,322 99,941 64,812
Total current assets (excluding cash) 171,308 133,203 130,068 105,312
Total current liabilities 164,792 109,447 115,203 108,737
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Working capital excluding cash and short term debt as at September 30, 2002
was $81.8 million ($74.4 million as at June 30, 2002). The increase is due to
the move to FOB/DAF sales, whereby customers pay after the crude oil is
delivered and the Corporation pays the transportation charges in advance.
Please refer to notes 3 and 4 of the consolidated interim financial
statements.
18
INTERIM CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
UNAUDITED
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2002 SEPT. 30, 2002 SEPT. 30, 2001 SEPT. 30, 2001
-------------------------------------------------------------------------------------------------------------------------
REVENUE
Crude oil 319,606 143,820 193,342 64,344
Refined products 240,476 101,031 264,774 89,977
Processing fees 2,112 678 8,623 3,273
Interest and other income 6,497 2,433 8,094 3,149
-------------------------------------------------------------------------------------------------------------------------
568,691 247,962 474,833 160,743
-------------------------------------------------------------------------------------------------------------------------
EXPENSES
Production 41,669 15,256 29,681 10,404
Royalties and taxes 43,709 21,538 30,748 14,461
Transportation 100,131 50,194 34,218 12,324
Refining 17,607 5,280 14,606 4,709
Crude oil and refined product purchases 50,414 11,765 60,862 18,662
Selling 18,724 8,102 15,057 4,528
General and administrative 42,270 14,440 35,355 12,795
Interest and financing costs 26,078 8,828 12,126 5,773
Depletion and depreciation 29,064 11,686 24,618 9,041
Foreign exchange loss (gain) 1,771 1,362 435 (217)
-------------------------------------------------------------------------------------------------------------------------
371,437 148,451 257,706 92,480
-------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE UNUSUAL ITEMS 197,254 99,511 217,127 68,263
-------------------------------------------------------------------------------------------------------------------------
UNUSUAL ITEMS
Arbitration settlement 7,134 43 - -
Defense costs related to potential takeover bid - - 6,000 -
-------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 190,120 99,468 211,127 68,263
-------------------------------------------------------------------------------------------------------------------------
INCOME TAXES (Note 11)
Current provision 64,706 36,358 67,377 22,992
Future income tax 6,312 2,206 (3,699) (2,126)
-------------------------------------------------------------------------------------------------------------------------
71,018 38,564 63,678 20,866
-------------------------------------------------------------------------------------------------------------------------
NET INCOME BEFORE MINORITY INTEREST 119,102 60,904 147,449 47,397
MINORITY INTEREST 1,672 391 1,153 907
-------------------------------------------------------------------------------------------------------------------------
NET INCOME 117,430 60,513 146,296 46,490
RETAINED EARNINGS, (DEFICIT), BEGINNING OF PERIOD (66,366) (9,465) (18,887) 80,904
Purchase of common shares (Note 10) (2,164) (2,164) - -
Common share dividends - - (209,710) (209,710)
Preferred share dividends (23) (7) (17) (2)
-------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS, (DEFICIT), END OF PERIOD 48,877 48,877 (82,318) (82,318)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
BASIC NET INCOME PER SHARE (Note 14) 1.45 0.74 1.83 0.58
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
DILUTED NET INCOME PER SHARE (Note 14) 1.39 0.71 1.73 0.55
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
19
INTERIM CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
UNAUDITED
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
AS AT AS AT
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents 162,246 64,812
Accounts receivable (Note 4) 81,907 52,287
Inventory 30,353 29,946
Prepaids (Note 5) 52,174 17,319
Current portion of future income tax asset 6,874 5,766
----------------------------------------------------------------------------------------
333,554 170,130
Long term investments - 40,000
Future income tax asset 20,891 29,444
Capital assets 382,939 332,896
----------------------------------------------------------------------------------------
TOTAL ASSETS 737,384 572,470
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (Note 7) 78,205 48,758
Short term debt (Note 8) 75,278 52,557
Prepayments for crude oil and refined products 11,309 7,422
----------------------------------------------------------------------------------------
164,792 108,737
Long-term debt (Note 9) 293,197 277,767
Provision for future site restoration costs 3,904 3,148
Future income tax liability 17,826 24,988
----------------------------------------------------------------------------------------
479,719 414,640
----------------------------------------------------------------------------------------
Minority interest 10,357 25,599
Preferred shares of subsidiary 85 91
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY
Share capital (Note 10) 198,346 198,506
Retained earnings, (Deficit) 48,877 (66,366)
----------------------------------------------------------------------------------------
247,223 132,140
----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 737,384 572,470
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
APPROVED BY THE BOARD OF DIRECTORS
(signed) (signed)
BERNARD ISAUTIER ROBERT KAPLAN
Director Director
20
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
UNAUDITED
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2002 SEPT. 30, 2002 SEPT. 30, 2001 SEPT. 30, 2001
-------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income 117,430 60,513 146,296 46,490
Items not affecting cash:
Depletion and depreciation 29,064 11,686 24,618 9,041
Other non-cash charges 3,739 3,111 (1,042) (493)
Minority interest 1,672 391 1,153 907
Future income tax 6,312 2,206 (3,699) (2,126)
-------------------------------------------------------------------------------------------------------------------------
Cash flow 158,217 77,907 167,326 53,819
Changes in non-cash operating working capital
items (Note 15) (31,548) (6,033) (47,558) 7,702
-------------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities 126,669 71,874 119,768 61,521
-------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short term debt 18,721 12,659 49,478 22,478
Common share dividends - - (31,830) (31,830)
Redemption of series 5 warrants - - (9,425) -
Long term debt (Note 15) 18,811 244 (38,355) (2,722)
Proceeds from issue of share capital, net of
share issuance costs 740 127 491 458
Shares repurchased (Note 10) (3,066) (3,066) - -
Preferred share dividends (23) (7) (18) (2)
-------------------------------------------------------------------------------------------------------------------------
Funds provided by (used for) financing 35,183 9,957 (29,659) (11,618)
-------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Long-term investment 40,000 - - -
Capital additions (101,559) (48,055) (50,096) (27,773)
Purchase of preferred shares of subsidiary (2,859) (2,852) (63) (8)
-------------------------------------------------------------------------------------------------------------------------
Funds provided by (used for) investing (64,418) (50,907) (50,159) (27,781)
-------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH 97,434 30,924 39,950 22,122
-------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS POSITION,
BEGINNING OF PERIOD 64,812 131,322 59,298 77,126
-------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS POSITION,
END OF PERIOD 162,246 162,246 99,248 99,248
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
21
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS, TABULAR AMOUNTS IN THOUSANDS OF
DOLLARS) UNAUDITED
-------------------------------------------------------------------------------
1 SIGNIFICANT ACCOUNTING POLICIES
The Interim Consolidated Financial Statements of Hurricane Hydrocarbons
LTD. ("Hurricane" or the "Corporation") have been prepared by
management in accordance with generally accepted accounting principles
in Canada. Certain information and disclosures normally required to be
included in the notes to the annual financial statements has been
omitted or condensed. The Interim Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial
Statements and the notes thereto in Hurricane's Annual Report for the
year ended December 31, 2001. The accounting principles applied are
consistent with those as set out in the corporation's annual financial
statements for the year ended December 31, 2001, except as described in
Note 10.
2 SEGMENTED INFORMATION
9 MONTHS ENDED SEPTEMER 30, 2002
----------------------------------------------------------------------------------------------------------------
UPSTREAM DOWNSTREAM CORPORATE CONSOLIDATED
SERVICES
----------------------------------------------------------------------------------------------------------------
REVENUE
Crude oil 319,606 - - 319,606
Refined products 91,850 148,626 - 240,476
Processing fees - 2,112 - 2,112
Interest and other income 4,443 755 1,299 6,497
----------------------------------------------------------------------------------------------------------------
415,899 151,493 1,299 568,691
----------------------------------------------------------------------------------------------------------------
EXPENSES
Production 41,669 - - 41,669
Royalties and taxes 43,557 152 - 43,709
Transportation 100,131 - - 100,131
Refining - 17,607 - 17,607
Crude oil and refined products purchases 20,806 29,608 - 50,414
Selling 7,404 11,320 - 18,724
General and administrative 24,985 11,815 5,470 42,270
Interest and financing costs 6,295 1,165 18,618 26,078
Depletion and depreciation 20,163 8,831 70 29,064
Foreign exchange loss (gain) 884 760 127 1,771
----------------------------------------------------------------------------------------------------------------
265,894 81,258 24,285 371,437
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE UNUSUAL ITEMS 150,005 70,235 (22,986) 197,254
----------------------------------------------------------------------------------------------------------------
UNUSUAL ITEM
Arbitration settlement 7,134 - - 7,134
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 142,871 70,235 (22,986) 190,120
----------------------------------------------------------------------------------------------------------------
INCOME TAXES
Current provision 48,000 14,535 2,171 64,706
Future income tax 5,369 943 - 6,312
----------------------------------------------------------------------------------------------------------------
53,369 15,478 2,171 71,018
----------------------------------------------------------------------------------------------------------------
MINORITY INTEREST - 1,672 - 1,672
----------------------------------------------------------------------------------------------------------------
NET INCOME 89,502 53,085 (25,157) 117,430
----------------------------------------------------------------------------------------------------------------
INTERSEGMENT REVENUE 71,460 35,144 - -
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Included in the upstream crude oil revenue, for the nine months ended September
30, 2002, is sales to one external customer in the amount of $90.8 million.
22
3 MONTHS ENDED SEPTEMBER 30, 2002
----------------------------------------------------------------------------------------------------------------
UPSTREAM DOWNSTREAM CORPORATE CONSOLIDATED
SERVICES
----------------------------------------------------------------------------------------------------------------
REVENUE
Crude oil 143,820 - - 143,820
Refined products 63,695 37,336 - 101,031
Processing fees - 678 - 678
Interest and other income 1,706 425 302 2,433
----------------------------------------------------------------------------------------------------------------
209,221 38,439 302 247,962
----------------------------------------------------------------------------------------------------------------
EXPENSES
Production 15,256 - - 15,256
Royalties and taxes 21,137 401 - 21,538
Transportation 50,194 - - 50,194
Refining - 5,280 - 5,280
Crude oil and refined products purchases 9,625 2,140 - 11,765
Selling 6,267 1,835 - 8,102
General and administrative 8,820 4,391 1,229 14,440
Interest and financing costs 2,024 489 6,315 8,828
Depletion and depreciation 8,351 3,311 24 11,686
Foreign exchange (gain) loss 496 801 65 1,362
----------------------------------------------------------------------------------------------------------------
122,170 18,648 7,633 148,451
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE UNUSUAL ITEMS 87,051 19,791 (7,331) 99,511
----------------------------------------------------------------------------------------------------------------
UNUSUAL ITEM
Arbitration settlement 43 - - 43
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 87,008 19,791 (7,331) 99,468
----------------------------------------------------------------------------------------------------------------
INCOME TAXES
Current provision 28,959 5,593 1,806 36,358
Future income tax 4,410 (2,204) - 2,206
----------------------------------------------------------------------------------------------------------------
33,369 3,389 1,806 38,564
----------------------------------------------------------------------------------------------------------------
MINORITY INTEREST - 391 - 391
----------------------------------------------------------------------------------------------------------------
NET INCOME 53,639 16,011 (9,137) 60,513
----------------------------------------------------------------------------------------------------------------
INTERSEGMENT REVENUE 17,211 5,945 - -
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Included in the upstream crude oil revenue, for the three months ended September
30, 2002, is sales to one external customer in the amount of $28.1 million.
23
9 MONTHS ENDED SEPTEMBER 30, 2001
----------------------------------------------------------------------------------------------------------------
UPSTREAM DOWNSTREAM CORPORATE CONSOLIDATED
SERVICES
----------------------------------------------------------------------------------------------------------------
REVENUE
Crude oil 191,318 2,024 - 193,342
Refined products 7,916 256,858 - 264,774
Processing fees - 8,623 - 8,623
Interest and other income 6,893 662 539 8,094
----------------------------------------------------------------------------------------------------------------
206,127 268,167 539 474,833
----------------------------------------------------------------------------------------------------------------
EXPENSES
Production 29,681 - - 29,681
Royalties and taxes 30,748 - - 30,748
Transportation 34,218 - - 34,218
Refining - 14,606 - 14,606
Crude oil and refined products purchases - 60,862 - 60,862
Selling 4,333 10,724 - 15,057
General and administrative 17,501 14,792 3,062 35,355
Interest and financing costs 6,137 814 5,175 12,126
Depletion and depreciation 17,167 7,171 280 24,618
Foreign exchange loss (gain) 438 319 (322) 435
----------------------------------------------------------------------------------------------------------------
140,223 109,288 8,195 257,706
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE UNUSUAL ITEMS 65,904 158,879 (7,656) 217,127
----------------------------------------------------------------------------------------------------------------
UNUSUAL ITEM
Defense costs related to potential takeover bid - - 6,000 6,000
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 65,904 158,879 (13,656) 211,127
----------------------------------------------------------------------------------------------------------------
INCOME TAXES
Current provision 55,001 11,202 1,174 67,377
Future income tax (33,969) 30,270 - (3,699)
----------------------------------------------------------------------------------------------------------------
21,032 41,472 1,174 63,678
----------------------------------------------------------------------------------------------------------------
MINORITY INTEREST - 1,153 - 1,153
----------------------------------------------------------------------------------------------------------------
NET INCOME 44,872 116,254 (14,830) 146,296
----------------------------------------------------------------------------------------------------------------
INTERSEGMENT REVENUE 143,291 13,026 - -
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Included in the upstream crude oil revenue, for the nine months ended September
30, 2001, is sales to one external customer in the amount of $80 million.
24
3 MONTHS ENDED SEPTEMBER 30, 2001
----------------------------------------------------------------------------------------------------------------
UPSTREAM DOWNSTREAM CORPORATE CONSOLIDATED
SERVICES
----------------------------------------------------------------------------------------------------------------
REVENUE
Crude oil 64,359 (15) - 64,344
Refined products 5,899 84,078 - 89,977
Processing fees - 3,273 - 3,273
Interest and other income 2,349 77 723 3,149
----------------------------------------------------------------------------------------------------------------
72,607 87,413 723 160,743
----------------------------------------------------------------------------------------------------------------
EXPENSES
Production 10,404 - - 10,404
Royalties and taxes 14,461 - - 14,461
Transportation 12,324 - - 12,324
Refining - 4,709 - 4,709
Crude oil and refined products purchases - 18,662 - 18,662
Selling 1,225 3,303 - 4,528
General and administrative 5,172 6,405 1,218 12,795
Interest and financing costs 1,939 464 3,370 5,773
Depletion and depreciation 6,397 2,424 220 9,041
Foreign exchange loss (gain) (110) (124) 17 (217)
----------------------------------------------------------------------------------------------------------------
51,812 35,843 4,825 92,480
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE UNUSUAL ITEMS 20,795 51,570 (4,102) 68,263
----------------------------------------------------------------------------------------------------------------
UNUSUAL ITEM
Defense costs related to potential takeover bid - - - -
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 20,795 51,570 (4,102) 68,263
----------------------------------------------------------------------------------------------------------------
INCOME TAXES
Current provision 16,188 6,618 186 22,992
Future income tax (8,699) 6,573 - (2,126)
7,489 13,191 186 20,866
----------------------------------------------------------------------------------------------------------------
MINORITY INTEREST - 907 - 907
----------------------------------------------------------------------------------------------------------------
NET INCOME 13,306 37,472 (4,288) 46,490
----------------------------------------------------------------------------------------------------------------
INTERSEGMENT REVENUE 44,273 8,927 - -
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Included in the upstream crude oil revenue, for the three months ended September
30, 2001, is sales to one external customer in the amount of $26.7 million.
AS AT SEPTEMBER 30, 2002
----------------------------------------------------------------------------------------------------------------
UPSTREAM DOWNSTREAM CORPORATE CONSOLIDATED
SERVICES
----------------------------------------------------------------------------------------------------------------
Total assets 494,809 132,353 110,222 737,384
Liabilities 225,675 39,443 214,601 479,719
Capital additions 94,885 212 6,462 101,559
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
AS AT DECEMBER 31, 2001
----------------------------------------------------------------------------------------------------------------
UPSTREAM DOWNSTREAM CORPORATE CONSOLIDATED
SERVICES
----------------------------------------------------------------------------------------------------------------
Total assets 344,176 191,955 36,339 572,470
Liabilities 162,543 50,288 201,809 414,640
Capital additions 91,957 10,046 729 102,732
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
25
3 JOINT VENTURES
The Corporation has the following interests in two joint ventures:
a) 50% equity shareholding with equivalent voting power in CJSC Turgai
Petroleum ("Turgai"), formerly Kumkol Lukoil CJSC, which operates the
northern part of the Kumkol field in Kazakhstan.
b) 50% equity shareholding with equivalent voting power in LLP
Kazgermunai ("Kazgermunai"), which operates three oil fields in
Kazakhstan: Akshabulak, Nurali and Aksai.
The following amounts are included in the Corporation's financial
statements as a result of the proportionate consolidation of its joint
ventures:
9 MONTHS ENDED SEPTEMBER 30, 2002
--------------------------------------------------------------------------------------------------
TURGAI KAZGERMUNAI TOTAL
--------------------------------------------------------------------------------------------------
Cash 3,863 17,465 21,328
Current assets, excluding cash 11,620 14,942 26,562
Capital assets, net 24,583 57,021 81,604
Current liabilities 13,069 5,167 18,236
Long term debt - 62,684 62,684
Revenue 52,795 33,022 85,817
Expenses 31,303 26,473 57,776
Net income 21,492 6,549 28,041
Cash flow from (used in) operating activities 9,766 11,616 21,382
Cash flow from financing activities - 1,617 1,617
Cash flow used in investing activities (7,402) (7,284) (14,686)
3 MONTHS ENDED SEPTEMBER 30, 2002
--------------------------------------------------------------------------------------------------
TURGAI KAZGERMUNAI TOTAL
--------------------------------------------------------------------------------------------------
Revenue 22,209 17,767 39,976
Expenses 13,160 12,687 25,847
Net income 9,049 5,080 14,129
Cash flow from (used in) operating activities 5,383 12,713 18,096
Cash flow from financing activities - 243 243
Cash flow used in investing activities (3,132) (4,395) (7,527)
The crude oil sales for the nine months ended September 30, 2002 includes $15.5
million and $21.6 million of crude oil sales made by Turgai Petroleum to HOP &
HKM respectively and $5.8 million of crude oil sales made by Kazgermunai to HOP.
The crude oil sales for the three months ended September 30, 2002 includes $14.5
million of crude oil sales made by Turgai to HKM.
26
9 MONTHS ENDED SEPTEMBER 30, 2001
----------------------------------------------------------------------------------------------
TURGAI KAZGERMUNAI TOTAL
----------------------------------------------------------------------------------------------
Cash 5,320 11,516 16,836
Current assets, excluding cash 41,853 12,193 54,046
Capital assets, net 12,086 56,017 68,103
Current liabilities 7,143 8,782 15,925
Long term debt - 61,729 61,729
Revenue 52,618 37,751 90,369
Expenses 19,963 30,313 50,276
Net income 32,655 7,438 40,093
Cash flow from operating activities 7,384 15,818 23,202
Cash flow used in financing activities (18,000) (20,318) (38,318)
Cash flow used in investing activities (5,145) (2,639) (7,784)
3 MONTHS ENDED SEPTEMBER 30, 2001
----------------------------------------------------------------------------------------------
TURGAI KAZGERMUNAI TOTAL
----------------------------------------------------------------------------------------------
Revenue 19,729 14,167 33,896
Expenses 9,404 11,239 20,643
Net income 10,325 2,928 13,253
Cash flow from (used in) operating activities 4,502 8,729 13,231
Cash flow used in financing activities (7,500) 1,086 (6,414)
Cash flow used in investing activities (3,041) (1,623) (4,664)
The crude oil sales for the nine months ended September 30, 2001 includes
$41.2 million of crude oil sales made by Turgai to HOP and $1.2 million
of crude oil sales made by Kazgermunai to HOP
The crude oil sales for the three months ended September 30, 2001 includes
$15.4 million of crude oil sales made by Turgai to HOP and $1.2 million of
crude oil sales made by Kazgermunai to HOP.
4 ACCOUNTS RECEIVABLE
SEPT. 30, DECEMBER 31,
2002 2001
----------------------------------------------------------------------------------------------
Trade accounts receivable 65,903 25,930
Value added tax recoverable 384 10,153
Withholding tax recoverable 5,000 5,000
Other receivables 10,620 11,204
----------------------------------------------------------------------------------------------
81,907 52,287
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
5 PREPAIDS
SEPT. 30, DECEMBER 31,
2002 2001
----------------------------------------------------------------------------------------------
Advances for services and equipment 18,971 14,788
Prepayment of transportation for FOB sales 29,313 1,104
Prepayment for pipeline tariff 3,890 1,427
----------------------------------------------------------------------------------------------
52,174 17,319
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
27
6 ACQUISITION OF OJSC SHYMKENTNEFTEORGSYNTEZ ("SHNOS")
During the third quarter of 2002, the Corporation acquired a further 5.6%
of the issued common shares of ShNOS now known as Hurricane Oil Products
(HOP) for cash consideration of $2.8 million.
The following table sets out the accounting for the transaction:
----------------------------------------------------------------------------------------------
Minority interest purchased 16,914
Reduction of fixed assets (20,087)
Future income tax liability 6,026
----------------------------------------------------------------------------------------------
Cash consideration 2,853
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
7 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
SEPT. 30, DECEMBER 31,
2002 2001
----------------------------------------------------------------------------------------------
Trade accounts payable 42,472 38,258
Crude royalties payable 15,777 7,312
Accrued income taxes payable 17,549 1,823
Others 2,407 1,365
----------------------------------------------------------------------------------------------
78,205 48,758
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
8 SHORT TERM DEBT
SEPT. 30, DECEMBER 31,
2002 2001
----------------------------------------------------------------------------------------------
Working capital facilities 21,278 42,557
Current portion of term facility 48,000 4,000
Joint venture loan payable 6,000 6,000
----------------------------------------------------------------------------------------------
75,278 52,557
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
9 LONG TERM DEBT
SEPT. 30, DECEMBER 31,
2002 2001
----------------------------------------------------------------------------------------------
12% notes 208,280 190,880
Kazgermunai debt 62,684 61,068
Term facility 12,000 16,000
ShNOS bonds 13,162 13,227
Issue costs (2,929) (3,408)
----------------------------------------------------------------------------------------------
293,197 277,767
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
12% NOTES
$18.6 million of the Notes outstanding as at December 31, 2001 were sold
during the nine months ended September 30, 2002.
28
TERM FACILITY
The Corporation entered into a secured, Term Facility for $60 million.
The facility will be repaid in fifteen equal monthly installments
commencing October 2002 and bears interest at LIBOR plus 3.5%. As at
September 30, 2002 the Corporation had drawn $60 million under this
facility, $48 million of which is classified as short-term debt as of
September 30, 2002.
The issue costs related to the Notes are $1.8 million and are recorded
as deferred charges, and are amortized, as well as $0.8 million of
deferred charges related to the Term Facility (see below).
REPAYMENT
Long term debt principal repayments due for each of the next five years
and in total are as follows:
2002 2003 2004 2005 2006 TOTAL
----------------------------------------------------------------------------------------------------------
12% Notes - - - - 208,280 208,280
Term facility - 12,000 - - - 12,000
ShNOS bonds - - 13,162 - - 13,162
----------------------------------------------------------------------------------------------------------
- 12,000 13,162 - 208,280 233,442
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
The Kazgermunai debt does not have fixed repayment terms.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 2002 and three
months ended September 30, 2002 was $26.1 million and $8.8 million
respectively of which interest related to long term debt was $25.3
million and $8.7 million respectively.
Interest expense for the nine months ended September 30, 2001 and three
months ended September 30, 2001 was $12.1 million and $5.8 million
respectively of which interest related to long term debt was $10.8
million and $5 million respectively.
10 SHARE CAPITAL
The Corporation maintains an incentive stock option plan ("plan") under
which directors, officers and key personnel may be granted options to
purchase class A common shares of the Corporation. The Corporation has
reserved 8,076,050 class A common shares for issuance upon the exercise
of options granted under the terms of the plan. The board of directors
determines the exercise price of each option, provided that no option
shall be granted with an exercise price at a discount to market. The
vesting periods established under the Corporation's stock option plan
and the term of the options are set by the board of directors, subject
to a maximum term for any option of 10 years.
The Corporation has adopted the recommendations of the Canadian
Institute of Chartered Accountants regarding stock based compensation.
The Corporation has elected to use the intrinsic value method of
accounting for stock options and to disclose the pro forma results of
using the fair value method. The new recommendations apply to options
granted after January 1, 2002. There have been no stock options granted
during the nine month period ended September 30, 2002.
During the third quarter, the Corporation adopted a normal course issuer
bid under the rules of the Toronto Stock Exchange to repurchase, for
cancellation, up to 5,253,238 common shares during the period from
August 7, 2002 to August 6, 2003. As at September 30, 2002, the
Corporation had cancelled 366,461 shares at an average price of $13.13
Canadian per share. The excess of cost over the book value for the
shares purchased was applied to the retained earnings.
29
11 INCOME TAXES
The provision for income taxes differs from the results, which would
have been obtained by applying the statutory tax rate of 30% to
Hurricane's income before income taxes. This difference results from the
following items:
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2002 SEPT. 30, 2002 SEPT. 30, 2001 SEPT. 30, 2001
---------------------------------------------------------------------------------------------------------------
Income before income tax 190,120 99,468 211,127 68,263
Effective Kazakhstan income tax rate 30% 30% 30% 30%
Expected tax expense 57,036 29,840 63,338 20,479
Non-deductible amounts, net 11,129 8,724 5,404 387
Prior year losses carry-forward - - (668) -
Future income tax recognised 2,853 - (4,396) -
---------------------------------------------------------------------------------------------------------------
Income tax expense 71,018 38,564 63,678 20,866
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
12 FINANCIAL INSTRUMENTS
The fair value of current assets and current liabilities approximates
their carrying value due to the short-term maturity of these
instruments. The fair value of long-term debt also approximates its
carrying value.
The Corporation has entered into a commodity-hedging program where it is
utilizing derivative instruments to manage the Corporation's exposure to
fluctuations in the price of crude oil. The Corporation has entered into
the following contracts with major financial institutions.
CONTRACT AMOUNT PRICE CEILING OR
(BBLS PER MONTH) CONTRACT PERIOD CONTRACT TYPE CONTRACTED PRICE PRICE FLOOR
-------------------------------------------------------------------------------------------------------------------------
166,667 October 2002 to December 2002 Brent IPE futures 25.22 -
-------------------------------------------------------------------------------------------------------------------------
187,500 January 2003 to December 2003 Zero cost collar 29.00 17.00
-------------------------------------------------------------------------------------------------------------------------
75,000 January 2003 to December 2003 Zero cost collar 30.00 17.00
-------------------------------------------------------------------------------------------------------------------------
75,000 January 2003 to December 2003 Zero cost collar 29.50 19.00
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
13 COMMITMENTS AND CONTINGENCIES
GOVERNMENT TAXES AND LEGISLATION
The Corporation, through its operating subsidiaries in Kazakhstan, has
disputed certain tax assessments for 1998 and 1999 as disclosed in note
16 to the financial statements in the December 31, 2001 Annual Report.
The Corporation has been engaged in two court cases in Kazakhstan
pertaining to the disputed assessments. The first involved ShNOS and was
for approximately $8.8 million. ShNOS has successfully argued its case
at the first level of the court system in Kazakhstan and at the Supreme
Court level. There is a possibility that the Ministry of State Revenue
may appeal to the ultimate appellate level, the Supervisory Commission
of the Supreme Court. No provision has been made in the financial
statements for this assessment.
The second case involved HKM and was for a total of approximately $10.5
million including taxes, fines, interest and penalties. HKM was
successful at the first level of the court system and was unsuccessful
on the majority of the issues at the Supreme Court level. HKM will
appeal to the ultimate appellate level, the Supervisory Commission of
the Supreme Court. The Corporation has provided for $2.9 million of the
$10.5 million in the September 30, 2002 financial statements. The
Corporation continues to dispute this assessment, as it believes the tax
stability provisions of its Hydrocarbons Contract establish that HKM is
not subject to the assessed taxes.
The Corporation has provided for a further $5.5 million of taxes
relating to the assessments for 1998 and 1999 for the years 2000, 2001
and for the first nine months of 2002.
The Corporation, through its operating subsidiaries in Kazakstan
received tax assessments for 2000 and 2001 amounting to $56 million,
which have been reduced through negotiations to $44 million. The
Corporation has not provided for these assessments and has filed or will
shortly file court cases disputing these assessments.
30
LEGAL PROCEEDINGS
The Corporation has been named as a defendant in a claim filed by a
company alleging it was retained under a consulting contract as
disclosed in Note 16 to the financial statements in the December 31,
2001 Annual Report. The arbitration decision has been received and the
Corporation has accrued and paid $7.2 million for full settlement of the
claim.
14 NET INCOME PER SHARE
The income per share calculations are based on the weighted average and
diluted numbers of Class A common shares outstanding during the period
as follows:
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2002 SEPT. 30, 2002 SEPT. 30, 2001 SEPT. 30, 2001
------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 81,042,900 81,301,955 79,875,296 79,994,874
Dilution from exercisable options
(including convertible securities) 3,440,217 3,440,217 4,586,261 4,663,052
------------------------------------------------------------------------------------------------------------------
Diluted number of shares outstanding 84,483,117 84,742,172 84,461,557 84,657,926
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
No options were excluded from the calculation of diluted number of
shares outstanding during the nine months ended September 30, 2002 and
three months ended September 30, 2002. During the nine months ended
September 30, 2001 and three months ended September 30, 2001 one hundred
thousand were excluded from the calculation.
15 CASH FLOW INFORMATION
Changes in non-cash operating working capital items include:
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2002 SEPT. 30, 2002 SEPT. 30, 2001 SEPT. 30, 2001
------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in accounts receivable (29,620) (19,031) (19,545) 5,719
(Increase)/decrease in inventory (407) (1,472) (1,227) 181
(Increase)/decrease in prepaids (34,855) (16,215) (20,139) (8,920)
Increase/(decrease) in accounts payable
and accrued liabilities 29,447 24,617 (4,863) 12,474
(Decrease)/increase in prepayments for
crude oil and refined products 3,887 6,068 (1,784) (1,752)
------------------------------------------------------------------------------------------------------------------
(31,548) (6,033) (47,558) 7,702
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Change in long-term debt includes:
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2002 SEPT. 30, 2002 SEPT. 30, 2001 SEPT. 30, 2001
------------------------------------------------------------------------------------------------------------------
Proceeds from ShNOS bonds - - 13,305 (18)
12% notes repurchased - - (849) (849)
12% notes sold, net of discount 17,195 - - -
Repayment of Canadian and US Notes - - (25,811) (811)
Repayment of Kazgermunai debt - - (25,000) (1,044)
Change in interest on Kazgermunai debt 1,616 249 - -
------------------------------------------------------------------------------------------------------------------
18,811 244 (38,355) 2,722
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
16 COMPARATIVE FIGURES
The presentation of certain accounts for previous periods has been changed
to conform with the presentation adopted for the current period.
31
CORPORATE INFORMATION
DIRECTORS OFFICERS AUDITORS
Bernard F. Isautier Bernard F. Isautier Deloitte & Touche
President and Chief Executive President and Chief Almaty, Kazakhstan
Officer Executive Officer
Windsor, United Kingdom
Mike Azancot INDEPENDENT RESERVOIR
Askar Alshinbaev (1) (2) Senior Vice President, CONSULTANTS
Managing Director Exploration and Development
Kazkommertsbank McDaniel & Associates
Almaty, Kazakhstan Nicholas H. Gay Consultants Ltd.
Senior Vice President Finance Calgary, Alberta
James B.C. Doak (1) (2) (3) and Chief Financial Officer
President and Managing Director
Enterprise Fund Dermot Hassett
Toronto, Ontario Vice President Marketing
and Transportation
Hon. Robert P. Kaplan (1)
International Business Anthony Peart
Consultant Senior Vice President,
Toronto, Ontario General Counsel and
Corporate Secretary
Jacques Lefevre (1)
Vice Chairman and Chief Marlo C. Thomas
Operating Officer Executive Vice President
Lafarge Paris, France
Ihor P. Wasylkiw
Louis W. MacEachern (2) (3) Vice President Investor
Chairman Servpro/Dalco Relations
Group
Calgary, Alberta
Nurzhan Subkhanberdin (2)
Chairman Kazkommertsbank
Almaty, Kazakhstan
[COMPANY LOGO]
(1) Audit Committee Member
(2) Compensation Committee website: www.hurricane-hhl.com
Member email: hurricane@hurricane-hhl.com
(3) Corporate Governance
Committee Member
REGISTERED OFFICE UK REPRESENTATIVE OFFICE SHARE LISTINGS
Hurricane Hydrocarbons Ltd. Ascot Petroleum Consulting Ltd. The Toronto Stock Exchange
Suite 1460 Sun Life Plaza, Hogarth House, 31 Sheet Street Trading Symbol HHL
North Tower, 140 - 4th Avenue S.W. Windsor, Berkshire S&P/TSX Composite Index
Calgary, Alberta United Kingdom SL4 1BY S&P/TSX Canadian Midcap
Canada T2P 3N3 Tel: 44 (1753) 410 020 Index
Tel: (403) 221-8435 Fax: 44 (1753) 410 030 S&P/TSX Energy Index
Fax: (403) 221-8425
Contact: Ihor P. Wasylkiw, KAZAKHSTAN OFFICES NYSE
Vice President Investor Relations Trading Symbol - HHL
Hurricane Kumkol Munai
Shymkentnefteorgsyntez Germany
204 Karasai Batyr Street Frankfurt
Almaty, Republic of Kazakhstan Trading Symbol - HHCA
480009
Tel: 7 (3272) 58-18-48 SENIOR NOTES LISTINGS
Fax: 7 (3272) 58-18-60
Contact: Marlo Thomas, President The Toronto Stock Exchange
Trading Symbol - HHL.DB.U
Luxembourg Stock Exchange
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HURRICANE HYDROCARBONS LTD.
(Registrant)
Date: November 27, 2002 By: /s/ Ihor P. Wasylkiw
---------------------------------
Ihor P. Wasylkiw
Vice President - Investor Relations