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NuVista Energy Ltd.: Announcing First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 12, 2004) - NuVista Energy Ltd. ("NuVista") is pleased to announce today its financial and operating results for the three months ended March 31, 2004 as follows: /T/-----------------------------------------------------------------------                                     Three Months Ended,                                  -----------------------     July 2 to                                   March 31,  December 31, September 30,Corporate Highlights                   2004          2003          2003-----------------------------------------------------------------------Financial($ thousands, except per share)Production revenue                   15,456        12,735        12,399 Cash flow from operations (1)        9,599         8,052         7,554  Per share - basic                    0.26          0.22          0.21  Per share - diluted                  0.25          0.21          0.20 Net income (2)                       3,732         2,878         2,746  Per share - basic (2)                0.10          0.08          0.08  Per share - diluted (2)              0.10          0.08          0.07Total assets                         95,602        94,415        81,832Bank loan, net of working capital    10,684        13,079         7,586Shareholders' equity                 76,732        72,775        69,439Capital expenditures                  7,174        13,437         7,523Weighted average common shares outstanding (thousands) Basic                               37,335        37,338        35,382 Diluted                             38,515        38,355        37,846----------------------------------------------------------------------------------------------------------------------------------------------Operating(boe conversion - 6:1 basis)Production: Natural gas (mmcf/day)                20.9          19.7          17.8 Crude oil (bbls/day)                 1,174         1,035           983  Total oil equivalent (boe/day)      4,651         4,316         3,949Product prices: Natural gas ($/mcf)                   6.35          5.64          6.02 Crude oil (bbls/day)                 31.85         26.56         29.70Operating expenses: Natural gas ($/mcf)                   0.63          0.60          0.56 Crude oil ($/bbl)                     3.91          4.38          4.26  Total oil equivalent ($/boe)         3.81          3.79          3.58General and administrative expenses ($/boe)                      0.35          0.35          0.35Cash costs ($/boe)                     4.31          4.38          4.77Cash flow netback ($/boe) (1)         22.68         20.28         21.02----------------------------------------------------------------------------------------------------------------------------------------------Notes:(1) Cash flow from operations is used before changes in non-cash working    capital to analyze operating performance and leverage. Cash flow    does not have a standardized measure prescribed by Canadian    Generally Accepted Accounting Principles and therefore may not be    comparable with the calculations with similar measures for other    companies.(2) Net income and net income per share for 2003 have been restated for    the adoption of new accounting standards for asset retirement    obligations and stock based compensation. See Note 1 of the    interim consolidated financial statements for details of this    restatement./T/MESSAGE TO SHAREHOLDERS NuVista Energy Ltd. ("NuVista") is pleased to report to shareholders its financial and operating results for the three months ended March 31, 2004.  The results of the first quarter of 2004 represents the third consecutive quarter of continuous profitable growth for NuVista since its creation through the Plan of Arrangement involving Bonavista Petroleum Ltd. ("Bonavista") and Bonavista Energy Trust (the "Trust") on July 2, 2003.  In the first quarter of 2004, NuVista experienced another successful quarter, having drilled 18 wells with an average working interest of 75%.  The success rate of 89% in this drilling program resulted in 11 natural gas wells and five oil wells. Of these wells, nine were medium depth natural gas wells drilled in the Eastern Alberta Natural Gas Region. These natural gas wells were drilled late in the first quarter of 2004 and brought on stream in May 2004.  In the second quarter of 2004, NuVista has agreed to two minor acquisitions in the Eastern Alberta Natural Gas Region and will have added emphasis on natural gas with a 20 well drilling program in this area. NuVista has evaluated and submitted proposals on a number of acquisition opportunities in the first quarter of 2004.  However, the acquisition market has remained very competitive in this high commodity price environment and NuVista was unable to complete any large transactions which met our asset quality or economic criteria.  Despite not having completed any major acquisitions and only spending 75% of cash flow in the first quarter of 2004, NuVista still grew its production by 8% over the fourth quarter of 2003, with focused efforts towards low cost reserve additions through the drill bit.  Although we remain committed to our disciplined approach, with a large number of opportunities coming to market in the middle to latter part of 2004 we are optimistic that NuVista will complete acquisitions which meets our criteria. In the meantime, NuVista will continue to focus on organic growth through active land and seismic acquisitions and an increased number of drilling prospects.  NuVista is committed to employing the same proven strategy for profitable growth and stewardship of capital, which resulted in Bonavista's success over the past six years.   The significant highlights of NuVista include: - Since inception, increased production by 33% to average 4,651 boe per day for the first quarter of 2004, consisting of 20.9 mmcf per day of natural gas and 1,174 bbls per day of crude oil  from the 3,500 boe per day consisting of 15.0 mmcf per day of natural gas and 1,000 bbls per day of crude oil on July 2, 2003. This significant growth was accomplished while capital expenditures were only 1.1 times cash flow during this period; - Increased undeveloped land to over 251,000 net acres from the 171,881 net acres on commencement of operations, further enhancing the drilling prospect inventory in this Core Region.  In addition, NuVista has optioned over 25,000 net acres of undeveloped land through farm-in commitments with industry partners;  - Reduced cash costs to $4.31 per boe for the first quarter of 2004, leaving NuVista in the top decile of its industry peers; - Participated in 26 (19.3 net) wells with an overall success rate of 85% for the year to date in 2004;  - Shot 262 miles of 2D and 35 square miles of 3D seismic to further enhance the prospectivity of NuVista's undeveloped land thus far in 2004; and - Presently in discussions with its bankers to expand the borrowing capability of NuVista to in excess of $40 million. MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis ("MD&A") of financial conditions and results of operations should be read in conjunction with the unaudited financial statements for the three months ended March 31, 2004. Barrels of oil equivalent ("boe") have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. Forward-Looking Statements - Certain information set forth in this document, including management's assessment of NuVista's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond NuVista's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecisions of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. NuVista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits that NuVista will derive therefrom. NuVista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. New accounting policies - In the first quarter of 2004, NuVista adopted and implemented new accounting policies pursuant to requirements of the Canadian Institute of Chartered Accountants ("CICA") Handbook. The new accounting policies adopted included: "Stock-based Compensation and Other Stock-based Payments", "Asset Retirement Obligations" and "Hedge Accounting" and are detailed further in Note 1 of the Notes to the Consolidated Financial Statements. Operating activities - NuVista's exploration and development program for the period ended March 31, 2004 led to the drilling of 18 (13.5 net) wells, with an overall success rate of 89%. This program resulted in 11 natural gas wells, five oil wells and two dry holes. NuVista operated 15 of the 18 wells, with an average working interest of 75% in the operated wells. During the quarter, NuVista also participated in three non-operated wells with an average working interest of 40% in these wells. NuVista continues to actively drill, with 66 wells planned for the remainder of the year. Production - NuVista's production results for the three months ended March 31, 2004 benefited from continued success in its Eastern Core Region drilling program. NuVista's average production of 4,651 boe per day for the first quarter of 2004 represents an increase of 8% over the fourth quarter of 2003 and a 13% increase over the last half of 2003. Production consisted of 20.9 mmcf per day of natural gas and 1,174 bbls per day of crude oil. NuVista has recently drilled 4 horizontal and 3 vertical oil wells at Amisk. These wells will be brought on stream in the second quarter of 2004, along with production from the first quarter natural gas drilling program. Revenues - Revenues for the three months ended March 31, 2004 were $15.5 million a 22% increase from $12.7 million for the three months ended December 31, 2003. These revenues were comprised of $12.1 million of natural gas revenues and $3.4 million of crude oil revenues in 2004. The increase in revenues for the three months ended March 31, 2004 versus December 31, 2003, results from an 8% increase in production and an increase in the prices of natural gas to $6.35 per mcf from $5.64 per mcf and crude oil to $31.85 per bbl from $26.56 per bbl respectively. Royalties - Royalties for the reporting period were $4.0 million, an average rate of 26.1% versus $3.0 million or 23.2% for the three months ended December 31, 2003. Natural gas royalties were $3.4 million with an average royalty rate of 28.6% and crude oil royalties were $587,000 with an average royalty rate of 17.3%. For the three months ended December 31, 2003, the natural gas royalty rate was 25.3% and the crude oil royalty rate was 14.6%. Operating expenses - Operating expenses for the period ended March 31, 2004 were $1.6 million, a 7% increase from $1.5 million for the three months ended December 31, 2003. This increase resulted primarily from the higher production in the three months ended March 31, 2004 from the three months ended December 31, 2003. Natural gas operating expenses averaged $0.63 per mcf and crude oil expenses were $3.91 per bbl in the first quarter of 2004 as compared to $0.60 per mcf and $4.38 per bbl respectively for the three months ended December 31, 2003. On a boe basis, operating costs were flat at $3.81 per boe in the first quarter of 2004 as compared to $3.79 per boe for the three months ended December 31, 2003, in spite of cost pressures facing the industry, leaving NuVista in the top decile for oil and natural gas companies in its peer group. Overall, NuVista's cash costs which include operating, general and administrative, interest expenses and Large Corporation Tax has consistently declined since inception to average $4.31 per boe in the first quarter of 2004. This too would place it in the top decile in its peer group in this performance criteria. General and administrative - General and administrative expenses, net of overhead recoveries were $149,000 or $0.35 per boe for the three months ended March 31, 2004. Included in these expenses is an allocation of $260,000 from Bonavista, pursuant to the Technical Services Agreement entered into as part of the Plan of Arrangement. The Technical Services Agreement allowed NuVista to initiate and continue with successful and active programs, through the use of Bonavista's personnel in managing its operations and at the same time take advantage of Bonavista's low overhead cost structure. In addition, as a result of adopting the new accounting rules, NuVista recorded a stock based non-cash compensation charge of $232,000 in connection with both of the Class B Performance shares and stock options. Interest expenses - Interest expense for the reporting period was $51,000 for the first quarter of 2004 or $0.12 per boe versus $38,000 or $0.10 per boe for the three months ended December 31, 2003 because of slightly higher average debt levels in the current quarter. Currently, NuVista's average borrowing rate is approximately 3.2%. Depreciation, depletion and accretion expenses - Depreciation, depletion and accretion expenses were $3.2 million for the period. The average cost per unit was $7.63 per boe in the first quarter of 2004 versus $7.28 per boe for the three months ended December 31, 2003 and is based on the allocation of Bonavista's net book value to NuVista on July 2, 2003 and capital spending program to March 31, 2003. The overall depreciation, depletion and accretion rate has been reduced as a result of the retroactive adoption of the new accounting rules relating to asset retirement obligations. Income and other taxes - The provision for income and other taxes was $2.4 million for an effective tax rate of 39%. Included in the future income tax provision is $258,000 resulting from the reduction in future tax asset because of the reduction in Alberta Corporate Income Tax rate. Capital expenditures - Capital expenditures were $7.2 million during the first quarter of 2004 and consisted of only exploration and development spending. These expenditures were considerably lower than the planned amount of approximately $17.6 million for the quarter, NuVista did not complete any acquisitions in the quarter. However NuVista still exceeded its production and cash flow targets for the current reporting period. Cash flow and net income - For the three months ended March 31, 2004, NuVista's cash flow was $9.6 million ($0.26 per share), a 19% increase from $8.1 million ($0.22 per share) for the three months ended December 31, 2003. Net income increased 30% during the period to $3.7 million ($0.10 per share) from $2.9 million ($0.08 per share), restated for the three months ended December 31, 2003. These increases resulted from stronger commodity prices and increased production rates for the reporting period in 2004 and allow NuVista to maintain a strong net income to cash flow ratio of almost 39%. Liquidity and capital resources - As at March 31, 2004, total bank debt (net of working capital) was $10.7 million, resulting in a debt to cash flow ratio of approximately 0.3 to 1. NuVista has approximately $21.3 million of unused bank borrowing capability based on the current line of credit of $32 million, which provides substantial flexibility to fund expanded capital programs into the future. BUSINESS RISKS AND OUTLOOK NuVista's management remains committed to the same principles and disciplined growth strategy that led to the tremendous success of Bonavista. With an undeveloped land base exceeding 251,000 net acres, an increased drilling inventory coupled with our strong balance sheet position, NuVista is positioned to continue posting strong operational and financial results for the remainder of 2004 and beyond. NuVista continues to work towards a base capital budget of $70 million for 2004, which will result in the drilling of 70 to 80 wells. NuVista will continue to focus on its core strategy of applying technical expertise to its operating regions in a prudent and disciplined manner, through both the drill bit and strategic acquisitions. The execution of these strategies will enable NuVista to continue to grow its production, cash flow and net income consistently and profitability. With continued expectations of exploration, development and acquisition success, NuVista is in an excellent position to average between 5,400 and 5,800 boe per day in 2004. With the current commodity price environment, NuVista is positioned to exceed previous estimates of $1.15 per share, with forecasted cash flow to be in the range of $1.25 per share to $1.35 per share. Furthermore, our solid financial position with a 0.3:1 debt to cash flow ratio will enable us to execute our 2004 capital program and remain positioned to pursue additional strategic opportunities as they arise. Given the high commodity price environment and corresponding high prices currently being paid for property and corporate acquisitions, NuVista has not executed any major acquisitions of the 2004 capital budget. However, acquisition opportunities are currently abundant and we remain confident our disciplined and detailed analysis will lead to the consummation of larger acquisitions in the middle to latter part of 2004. Regardless of environment, NuVista has positioned itself to deliver profitable long term growth. We remain unwavering in our commitment to enhance shareholder value by accessing the broad depth and expertise of the Bonavista team in a diligent and prudent manner. /T/Consolidated Balance Sheets(thousands)                                 March 31,       December 31,                                                2004               2003-----------------------------------------------------------------------                                          (unaudited)          (audited)                                                              (restated)AssetsAccounts receivable                          $  5,814          $  6,251Oil and natural gas properties and equipment                                 83,271            79,243Future tax asset                                6,517             8,922-----------------------------------------------------------------------                                             $ 95,602          $ 94,416-----------------------------------------------------------------------Liabilities and Shareholders' EquityAccounts payable and accrued liabilities     $ 10,039          $ 12,402Bank loan                                       6,459             6,928-----------------------------------------------------------------------                                               16,498            19,330Asset retirement obligation                     2,372             2,311Shareholders' equity: Share capital                                 66,683            66,690 Contributed surplus                              693               461 Retained earnings                              9,356             5,624-----------------------------------------------------------------------                                               76,732            72,775-----------------------------------------------------------------------                                             $ 95,602          $ 94,416----------------------------------------------------------------------------------------------------------------------------------------------Statements of Operations and Retained Earnings                                                              Three(thousands, except per share amounts)                     Months ended                                                         March 31, 2004-----------------------------------------------------------------------(unaudited)Revenues: Production                                                    $ 15,456 Royalties, net of Alberta Royalty Tax Credit                    (4,033)-----------------------------------------------------------------------                                                                 11,423-----------------------------------------------------------------------Expenses: Operating                                                        1,613 General and administrative                                         149 Financing charges                                                   51 Stock based compensation expense                                   232 Depreciation, depletion and accretion                            3,230-----------------------------------------------------------------------                                                                  5,275-----------------------------------------------------------------------Income before income and other taxes                              6,148 Income and other taxes                                           2,416-----------------------------------------------------------------------Net income                                                        3,732Retained earnings, beginning of period                            5,668Retroactive application of changes in accounting policies (Note 1)                                    (44)-----------------------------------------------------------------------Retained earnings, end of period                               $  9,356----------------------------------------------------------------------------------------------------------------------------------------------Net income per share - basic                                   $   0.10----------------------------------------------------------------------------------------------------------------------------------------------Net income per share - diluted                                 $   0.10----------------------------------------------------------------------------------------------------------------------------------------------Statements of Cash Flows                                      Three(thousands)                                               Months ended                                                         March 31, 2004-----------------------------------------------------------------------(unaudited)Cash provided by (used in):Operating Activities: Net income                                                     $ 3,732 Items not requiring cash from operations:  Depreciation, depletion and accretion                           3,230  Stock based compensation expense                                  232  Future income taxes                                             2,405----------------------------------------------------------------------- Funds flow from operations                                       9,599 Asset retirement expenditures                                      (23) Decrease in non-cash working capital items                      (1,926)-----------------------------------------------------------------------                                                                  7,650-----------------------------------------------------------------------Financing Activities: Issuance of share capital, net of share issue costs                 (7) Decrease in bank loan                                             (469)-----------------------------------------------------------------------                                                                   (476)-----------------------------------------------------------------------Investing Activities: Oil and natural gas properties and equipment additions          (7,174)-----------------------------------------------------------------------                                                                 (7,174)-----------------------------------------------------------------------Decrease in cash                                                      -Cash, beginning of period                                             ------------------------------------------------------------------------Cash, end of period                                             $     -----------------------------------------------------------------------------------------------------------------------------------------------/T/SELECTED NOTES TO INTERIM FINANCIAL STATEMENTS (unaudited) Three months ended March 31, 2004. The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles (GAAP), using the same accounting policies as those set out in note 1 to the consolidated financial statements for the year ended December 31, 2003 except as noted below. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the period from July 2, 2003 to December 31, 2003. 1. Changes in accounting policies: a) Oil and natural gas assets: Oil and natural gas assets are evaluated in each reporting period to determine that the carrying amount in a cost centre is recoverable and does not exceed the fair value of the properties in the cost centre. The carrying amounts are assessed to be recoverable when the sum of the undiscounted cash flows expected from the production of proved reserves, the lower of cost and market of unproved properties and the cost of major development projects exceeds the carrying amount of the cost centre. When the carrying amount is not assessed to be recoverable, an impairment loss is recognized to the extent that the carrying amount of the cost centre exceeds the sum of the discounted cash flows expected from the production of proved and probable reserves, the lower of cost and market of unproved properties and the cost of major development projects of the cost centre. The cash flows are estimated using expected future product prices and costs and are discounted using a risk-free interest rate. Effective January 1, 2004, NuVista adopted the new accounting standard relating to full cost accounting. The adoption of this new policy on January 1, 2004 resulted in no write-down to the carrying value of oil and natural gas assets. Prior to January 1, 2004 the ceiling test amount was the sum of the undiscounted cash flows expected from the production of proved reserves, the lower of cost or market of unproved properties and the cost of major development projects less estimated future costs for administration, financing, site restoration and income taxes. The cash flows were estimated using period end prices and costs. NuVista has performed the ceiling test under AcG-16 as of January 1, 2004. The impairment test was calculated using the benchmark reference prices at January 1 for the years 2004 to 2008 and thereafter as follows and adjusted for commodity differentials specific to NuVista: /T/Average Price Forecasts:                                               Year-----------------------------------------------------------------------                           2004      2005      2006      2007      2008-----------------------------------------------------------------------WTI ($U.S./bbl)           29.00     26.50     25.50     25.00     25.00-----------------------------------------------------------------------AECO ($Cdn/mcf)            5.80      5.47      5.14      4.94      4.78-----------------------------------------------------------------------/T/b) Asset retirement obligations: NuVista adopted CICA Handbook Section 3110 "Asset Retirement Obligations". This change in accounting policy has been applied retroactively with the restatement of the prior period presented for comparative purposes. Previously, NuVista recognized a provision for future site reclamation and abandonment costs calculated on the unit-of-production method over the life of the oil and natural gas properties based on total estimated proved reserves and the estimated future liability. As a result of this change, net income for the period from inception on July 2, 2003 to December 31, 2003 increased by $313,000 ($481,000 net of a future income tax expense of $168,000). The Asset Retirement Obligation increased by $1.0 million, oil and natural gas properties net increased by $252,000 and share capital increased by $1.4 million as at December 31, 2003. Basic and diluted net income per share increased by $0.01, as a result of the retroactive application of this new accounting policy. The completion of this change in accounting resulted in an increase of $313,000 to retained earnings as at January 1, 2004. c) Stock-based compensation NuVista has retroactively adopted the new accounting standard for stock-based compensation, which requires the use of the fair value method for valuing stock option grants on or after January 1, 2002. Under this method, the compensation cost attributable to all share options granted is measured at fair value at the grant date and expensed over the vesting period with a corresponding increase to contributed surplus. Upon the exercise of the stock options, consideration received together with the amount previously recognized in contributed surplus is recorded as an increase to share capital. NuVista has incorporated an estimated forfeiture rate of 10% for stock options that will not vest. As a result of adopting the new accounting standard on a retroactive basis, net income for the period from July 2, 2003 to December 31, 2003 decreased by $357,000, and contributed surplus increased by $357,000. Basic and diluted net income per share decreased $0.01 as a result of adopting this new accounting policy. The completion of this change in accounting policy resulted in a decrease of $357,000 to retained earnings as at January 1, 2004. d) Hedge relationships The Canadian Institute of Chartered Accountants ("CICA") issued Accounting Guideline 13 - Hedging Relationships, which deals with the identification, designation, documentation and effectiveness of hedging relationships for the purpose of applying hedge accounting. The guideline establishes conditions for applying hedge accounting. The guideline is effective for fiscal years beginning on or after July 1, 2003. Where hedge accounting does not apply, any changes in the fair value of the financial derivative contracts relating to a financial period can either reduce or increase net income and net income per share for that period. 2. Asset retirement obligations: NuVista's asset retirement obligations result from net ownership interests in oil and natural gas assets including well sites, gathering systems and processing facilities. NuVista estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $7.9 million which will be incurred over the next 51 years. The majority of the costs will be incurred between 2018 and 2034. A credit-adjusted risk-free rate of 7.5% was used to calculate the fair value of the asset retirement obligations. A reconciliation of the asset retirement obligations is provided below: /T/-----------------------------------------------------------------------                                       Three Months         Period from                                              ended          July 2, to                                     March 31, 2004   December 31, 2003-----------------------------------------------------------------------(thousands)Balance, beginning of period                $ 2,311             $ 2,130Accretion expense                                60                  85Liabilities incurred                             24                 206Liabilities settled                             (23)               (110)-----------------------------------------------------------------------Balance, end of period                      $ 2,372             $ 2,311----------------------------------------------------------------------------------------------------------------------------------------------/T/3. Share capital: As at March 31, 2004 there were 37,334,418 common shares and 1,193,750 Class B Performance Shares outstanding. In addition, there were 1,406,150 stock options, with an average exercise price of $6.40 per share as at March 31, 2004. 4. Hedging activities: As at March 31, 2004, NuVista has entered into physical purchase contracts to sell 200 bbls per day for the period from April 1, 2004 to September 30, 2004 at prices ranging from US $27.50 per bbl to US $28.50 per bbl. In addition, NuVista has sold 1,000 gj's per day for the period from April 1, 2004 to October 31, 2004 by way of a costless collar with a floor price $5.00 per gj and a ceiling price of $6.25 per gj at AECO. INVESTOR INFORMATION NuVista is an independent Canadian oil and natural gas exploration, development and production company with its common shares trading on the Toronto Stock Exchange under the symbol "NVA". Corporate information provided herein contains forward-looking information. The reader is cautioned that assumptions used in the preparation of such information, which are considered reasonable by NuVista at the time of preparation, may be proven to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. There is no representation by NuVista that actual results achieved during the forecast period will be the same in whole or in part as those forecast. -30-
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