North Peace Energy Corp.
TSX VENTURE : NPE

North Peace Energy Corp.

November 10, 2010 19:11 ET

North Peace Energy Updates Pro Forma Financial Statements

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2010) - North Peace Energy Corp. ("North Peace") (TSX VENTURE:NPE) has received amended pro-forma financial information concerning Southern Pacific Resource Corp. ("Southern Pacific") after giving effect to the arrangement with North Peace. A disclosure issue was identified with the previously issued pro forma financial statements which were contained in North Peace's information circular and proxy statement dated October 21, 2010 ("Information Circular") and mailed to North Peace's shareholders on November 2, 2010.

Revised Pro Forma Financial Statements

Southern Pacific has revised the pro forma financial statements to reflect the inclusion of four months of operations on its Senlac property. The net effect of the revision is an additional $26.2 million of net revenue ($0.04 per share) is now included in the revised Pro-Forma financial statements compared to the Pro-Forma financial statements which were contained in the Information Circular. The full text of the revised pro formas are set forth below.

SOUTHERN PACIFIC RESOURCE CORP.  
Unaudited Pro Forma Consolidated Balance Sheet  
As at June 30, 2010  
  Southern
Pacific
Resource
Corp.
  North
Peace
Energy
  Pro
Forma
Adjustments
  Note   Pro
Forma
Consolidated
 
(in thousands of dollars) $   $   $       $  
ASSETS                    
Current                    
Cash and equivalents 63,504   2,987         66,491  
Accounts receivable 7,377   395         7,772  
Prepaid expenses 233   37         270  
Risk management contracts 273           273  
  71,387   3,419         74,806  
Property, plant and equipment 277,810   69,617   (60,572 ) 2(a ) 286,855  
  349,197   73,036   (60,572 )     361,661  
LIABILITIES AND SHAREHOLDERS' EQUITY                    
Current                    
Accounts payable and accrued liabilities 11,361   889   2,150   2(b ) 14,400  
Provincial taxes payable 97           97  
  11,458   889   2,150       14,497  
Asset retirement obligation 6,449   645   2   2(a ) 7,096  
Future income tax 39,770     (7,218 ) 2(a ) 32,552  
  57,677   1,534   (5,066 )     54,145  
Share capital 281,579   73,645   (73,645 ) 2(c )    
          15,996   2(d ) 297,575  
Contributed surplus 23,221   7,563   (7,563 ) 2(c ) 23,221  
Deficit (13,280 ) (9,706 ) 9,706   2(c ) (13,280 )
  291,520   71,502   (55,506 )     307,516  
  349,197   73,036   (60,572 )     361,661  
See accompanying notes to the unaudited pro forma consolidated financial statements
 
SOUTHERN PACIFIC RESOURCE CORP.  
Unaudited Pro Forma Consolidated Statement of Operations  
For the year ended June 30, 2010  
  Southern
Pacific
Resource
Corp.
  North
Peace
Energy
  Senlac
(4 months)
  Pro
Forma
Adjustments
  Note   Pro
Forma
Consolidated
 
(in thousands of dollars) $   $       $       $  
      (note 3 ) (note 4 )            
Revenue                        
Petroleum and natural gas 62,043   195   48,436         110,674  
Royalties (9,642 ) (10 ) (5,439 )       (15,091 )
Gain on risk management contracts 198             198  
Interest and other income 15   21           36  
  52,614   206   42,997           95,817  
Expenses                        
Operating 10,656   116   16,788           27,560  
General and administrative 4,064   2,327           6,391  
Interest and financing 947             947  
Depletion, depreciation and accretion 28,597   1,056     13,584   2(e ) 43,237  
Stock based compensation 3,203   1,039           4,242  
  47,467   4,538   16,788   13,584       82,377  
Income (loss) before income taxes 5,147   (4,332 ) 26,209   (13,584 )     13,440  
Income taxes                        
Provincial income tax 901       823   2(f ) 1,724  
Future (recovery) expense (3,952 ) (575 )   3,186   2(g ) (1,341 )
  (3,051 ) (575 )   4,009       383  
                         
Net income (loss) and comprehensive income (loss) 8,198   (3,757 ) 26,209   (17,593 )     13,057  
                         
Net income (loss) per share [note 5]                        
  Basic 0.04   (0.05 )             0.06  
  Diluted 0.04   (0.05 )             0.06  
Amendment (note 6)
See accompanying notes to the unaudited pro forma consolidated financial statements

SOUTHERN PACIFIC RESOURCE CORP.
Amended - Notes to the Unaudited Pro Forma Consolidated Financial Statements
For the year ended June 30, 2010 (in thousands of dollars)

1. BASIS OF PRESENTATION

The accompanying unaudited pro forma consolidated balance sheet as at June 30, 2010 and unaudited pro forma consolidated statement of operations for the year ended June 30, 2010 (collectively the "unaudited pro forma consolidated financial statements") of Southern Pacific Resource Corp. (the "Company") have been prepared by management of the Company.

The unaudited pro forma consolidated financial statements give effect to the transactions described in the notes below.

The unaudited pro forma consolidated financial statements may not be indicative of the financial position or results of operations that would have occurred if the events reflected therein had been in effect on the dates indicated or of the results that may be obtained in the future.

The unaudited pro forma consolidated financial statements have been prepared by management based upon, and should be read in conjunction with, the audited consolidated financial statements of the Company as at and for the year ended June 30, 2010, the unaudited interim balance sheet of North Peace Energy Corp. ("North Peace") as at June 30, 2010 and the constructed statement of operations for the twelve months ended June 30, 2010 and the unaudited schedule of revenues, royalties and expenses of the Senlac property ("Senlac") for the nine months ended September 30, 2009 and the constructed statement of operations for the four months ended November 3, 2009.

The accounting policies used in the preparation of the unaudited pro forma consolidated financial statements are in accordance with those disclosed in the Company's audited consolidated financial statements as at and for the year ended June 30, 2010.

In the opinion of the management of the Company, the unaudited pro forma consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include all adjustments necessary for fair presentation of the transactions described herein. The unaudited pro forma consolidated balance sheet gives effect to the transactions described in notes 2 through 3 with respect to North Peace, as if they had occurred on June 30, 2010 and the unaudited pro forma consolidated statement of operations give effect to all of these transactions (including Senlac's operations) as if they had occurred on July 1, 2009.

2. PRO FORMA ADJUSTMENTS – ACQUISITION OF NORTH PEACE ENERGY CORP.

a) On September 27, 2010 the Company announced it had reached an agreement to purchase all of the outstanding shares of North Peace, whereby each North Peace shareholder will receive approximately 0.185 of a common share of the Company for a total of 14,093,263 shares. This transaction is expected to close late November 2010. Estimated transaction costs of the acquisition are approximately $200.

The unaudited pro forma consolidated financial statements reflect the transaction using the purchase method of accounting, under Canadian Institute of Chartered Accountants Handbook section 1581, Business Combinations. The purchase price allocations are based on preliminary valuation estimates of North Peace assets acquired and liabilities assumed. The final valuations and any interim updated preliminary valuation estimates may differ materially from these preliminary valuation estimates and as a result the final allocation of the purchase price may result in reclassifications of the allocated amounts that are materially different from the purchase price allocations reflected below.

  $  
Allocation of purchase price:    
  Petroleum and natural gas assets 9,045  
  Working capital assumed (1) 580  
  Asset retirement obligation (647 )
  Future income tax asset 7,218  
  16,196  
     
Calculation of purchase price:    
  Fair value of shares issued 15,996  
  Transaction costs 200  
  16,196  
(1) Working capital includes cash of $2,987 and North Peace transaction costs of $1,950

b) An adjustment has been made to accounts payable to accrue for the transaction costs of approximately $200 plus $1,950 of transaction costs of North Peace which were not reflected in the June 30, 2010 North Peace financial statements.

c) Share Capital of $73,645, Contributed surplus of $7,563 and Deficit of $9,706 related to North Peace were all eliminated as a result of the purchase as described in note 2(a).

d) The Share Capital was also adjusted on the pro forma consolidated financial statements to reflect the value of the common shares issued as consideration for the transaction, at a price of $1.135 per share being the share price on the days surrounding the announcement date of the transaction.

e) Depletion, depreciation and accretion has been increased by $13,584 reflecting the combined reserves and production of Southern Pacific, Senlac and North Peace.

f) The provincial income taxes were adjusted to reflect the impact of the additional resource sales generated from the Senlac acquisition as calculated in note 4.

g) Future income tax recovery has been reduced by $3,186 for the year ended June 30, 2010 reflecting the increase in net income arising as a result of the acquisitions and the adjustments noted above using an estimated future tax rate of 27%.

3. CONSTRUCTED STATEMENT OF OPERATIONS – NORTH PEACE

The unaudited constructed statement of operations of North Peace for the twelve months ended June 30, 2010 has been constructed from the audited statement of operations of North Peace for the year ended December 31, 2009, deducting the unaudited statement of operations of North Peace for the six months ended June 30, 2009 and adding the unaudited statement of operations of North Peace for the six months ended June 30, 2010. The unaudited statement of operations of North Peace for the twelve months ended June 30, 2010 used to prepare the Company's unaudited pro forma statement of operations for the twelve months ended June 30, 2010 was prepared solely for the purpose of such pro forma statements and do not conform with the financial statements of North Peace incorporated by reference in the information circular and proxy statement.

North Peace Energy Corp. Twelve
Months
Ended
Dec 30, 2009
  Six Months
Ended
Jun 30, 2009
  Six Months
Ended
Jun 30, 2010
  Pro
Forma
Constructed
 
(in thousands of dollars) $   $   $   $  
  (audited)              
Revenue                
Petroleum and natural gas     195   195  
Royalties     (10 ) (10 )
Other income 47   31   5   21  
  47   31   190   206  
Expenses                
Operating     116   116  
General and administrative 2,135   943   1,135   2,327  
Depletion, depreciation and amortization 71   36   1,021   1,056  
Stock based compensation 1,133   599   505   1,039  
  3,339   1,578   2,777   4,538  
Loss before income taxes (3,292 ) (1,547 ) (2,587 ) (4,332 )
Income taxes                
Future expense (recovery) (532 ) (193 ) (236 ) (575 )
                 
Net loss and comprehensive loss (2,760 ) (1,354 ) (2,351 ) (3,757 )

4. CONSTRUCTED STATEMENT OF OPERATIONS - SENLAC

The unaudited constructed statement of operations of Senlac for the four months ended November 3, 2009 has been constructed from the business acquisition report of Senlac, the schedule of revenues, royalties and expenses of the Senlac Property for the nine months ended September 30, 2009, deducting the unaudited schedule of revenues, royalties and expenses for the six months ended June 20, 2009 and adding the one month estimate ended November 3, 2009. The unaudited statement of operations of Senlac for the four months ended November 3, 2009 used to prepare the Company's unaudited pro forma statement of operations for the twelve months ended June 30, 2010 was prepared solely for the purpose of such pro forma statements.

Senlac Property Nine Months
Ended
Sept 30, 2009
  Six Months
Ended
Jun 30, 2009
  One Month
Ended
Nov 3, 2009
  Pro Forma
Constructed
July 1 to
Nov 3, 2009
 
(in thousands of dollars) $   $   $   $  
                 
Revenue                
Petroleum and natural gas 66,951   30,624   12,109   48,436  
Royalties (7,229 ) (3,150 ) (1,360 ) (5,439 )
  59,722   27,474   10,749   42,997  
Expenses                
Operating 30,043   17,452   4,197   16,788  
Operating income 29,679   10,022   6,552   26,209  

5. PER SHARE AMOUNTS

After reflecting all transactions contemplated herein the estimated basic and diluted weighted-average number of common shares outstanding for the year ended June 30, 2010 were calculated as follows:

  Net Income after Tax Shares Outstanding
(weighted average)
Pre acquisition balances – Southern Pacific $ 8,198 200,385
Pro forma adjustments   4,859 14,093
Total basic $ 13,057 214,478
Dilution   - 2,367
Total diluted $ 13,057 216,845
Per share amount:      
Basic and diluted $ 0.06  

6. AMENDMENT

The pro forma consolidated statement of operations for the twelve months ended June 30, 2010 was amended to reflect an adjustment related to the Senlac Acquisition completed by Southern Pacific Resource Corp. on November 3rd, 2009. The previous pro forma consolidated statement of operations included in the North Peace Energy Corp. information circular and proxy statement dated October 21, 2010 reflected eight months of Senlac operations from November 3rd to June 30, 2010. This pro forma consolidated statement of operations has been amended to reflect twelve months of operations as if the Senlac Acquisition had occurred on July 1, 2009.

Readers' Advisory

This news release contains certain "forward-looking information" within the meaning of applicable securities law including, but not limited to, estimates as to: completion of the Transaction, anticipated benefits of the Transaction, commerciality of the Red Earth CSS Pilot Project.

For a description of the risks and uncertainties facing Southern Pacific and its business and affairs, readers should refer to Southern Pacific's most recent Annual Information Form. Southern Pacific undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change, unless required by law.

For a description of the risks and uncertainties facing North Peace and its business and affairs, readers should refer to North Peace's most recent Annual Information Form. North Peace undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change, unless required by law.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. The TSX has neither approved nor disapproved the contents of this press release.

Contact Information

  • North Peace Energy Corp.
    Louis Dufresne
    President and CEO
    (403) 262-6024
    or
    North Peace Energy Corp.
    James Glessing
    Vice President, Finance & CFO
    (403) 262-6024
    (403) 262-6072 (FAX)
    contact@northpec.com
    www.northpec.com