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NuVista Energy Ltd. Announces Results for the Period Ending September 30, 2003

CALGARY, ALBERTA--NuVista Energy Ltd. ("NuVista") is pleased to provide the initial announcement today of its financial and operating results for the period ended September 30, 2003 as follows: /T/-----------------------------------------------------------------------Corporate Highlights-----------------------------------------------------------------------                                                           Period ended                                                           September 30,                                                                2003 (1)-----------------------------------------------------------------------Financial($ thousands, except per share amounts)Production revenue                                               12,399Cash flow from operations                                         7,554 Per share - basic                                                 0.21 Per share - diluted                                               0.20Net income                                                        2,768 Per share - basic                                                 0.08 Per share - diluted                                               0.07Total assets                                                     78,935Bank loan, net of working capital                                 7,586Shareholders' equity                                             67,748Net capital expenditures                                          7,523Weighted average common shares outstanding  (thousands) Basic                                                           35,382 Diluted                                                         37,846-----------------------------------------------------------------------Operating(boe conversion - 6:1 basis)Production: Natural gas (mmcf/day)                                           17.8 Crude oil (bbls/day)                                              983  Total oil equivalent (boe/day)                                 3,949Product prices: Natural gas ($/mcf)                                              6.02 Crude oil ($/bbl)                                               29.70Operating expenses: Natural gas ($/mcf)                                              0.56 Crude oil ($/bbl)                                                4.26  Total oil equivalent ($/boe)                                    3.58General and administrative expenses ($/boe)                       0.35Cash costs ($/boe)                                                4.77Cash flow netback ($/boe)                                        21.02-----------------------------------------------------------------------(1) Period is from July 2, 2003 to September 30, 2003/T/MESSAGE TO SHAREHOLDERS NuVista Energy Ltd. ("NuVista") is pleased to submit its initial report to shareholders and its financial and operating results for the period from July 2, 2003 to September 30, 2003. NuVista was formed as part of the Plan of Arrangement involving Bonavista Petroleum Ltd. ("Bonavista"). As part of the reorganization, Bonavista Energy Trust (the "Trust") retained approximately 90% of the oil and natural gas properties, with the remainder transferred to NuVista. The significant highlights from July 2 to November 19 include: - Increased production by 17% from the 3,500 boe per day consisting of 15 mmcf per day of natural gas and 1,000 bbls per day of crude oil on July 2 to the present level of 4,100 boe per day consisting of 18.7 mmcf per day of natural gas and 975 bbls per day of crude oil, maintaining focus on natural gas; - Increased undeveloped land to over 200,000 net acres in NuVista's Eastern Alberta Core Region from the 172,000 net acres on commencement of operations, further enhancing the drilling prospect inventory in this Core Region; - Participated in 29 (18.4 net) wells with an overall success rate of 84%; - Shot 10 miles of 2D and 28 square miles of 3D seismic to further enhance the prospectivity of NuVista's undeveloped land; - On completion of the Plan of Arrangement, NuVista commenced operations seamlessly and through the Technical Services Agreement with the Trust was able to average general and administrative costs of $0.35 per boe and overall cash costs (operating, general and administrative, interest expenses and capital taxes) of $4.77 per boe for the period, ranking in the top decile of its industry peers; and - Completed the issue of 2.5 million shares for gross proceeds of $18.4 million, providing NuVista significant flexibility to finance current and future capital programs. 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 period from July 2, 2003 to September 30, 2003. 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. Operating activities - NuVista's exploration and development program for the period ended September 30, 2003 led to the drilling of 19 (12.0 net) wells in its Eastern core region, with an overall success rate of 75%. This program resulted in 8.0 net natural gas wells, 1.0 net oil wells and 3.0 net dry holes. NuVista operated 12 of the 19 wells, with an average working interest of 91% in the operated wells. During the period, NuVista also participated in seven non-operated wells with an average working interest of 14.6% in these non-operated wells. NuVista continues to actively drill, with 19 operated and two non-operated wells, planned in the fourth quarter. Production - NuVista's production results for the period ended September 30, 2003 benefited from early success in NuVista's Eastern Core Region natural gas drilling program. Although natural gas volumes are ahead of forecast, crude oil volumes have remained flat due to the delay in the drilling program at Amisk, until the fourth quarter. NuVista has recently drilled two horizontal and two vertical wells at Amisk with an additional horizontal well and two vertical wells being drilled prior to year-end. All of these wells will be on-stream by year-end. NuVista's average production of 3,949 boe per day for the period represents an increase of 13% since July 2, 2003 when it commenced operations. At September 30, 2003, production in the Eastern Core Region has increased to 18.2 mmcf per day of natural gas and 970 bbls per day of crude oil as a result of a very successful drilling program. Revenues - Revenues for the period from July 2, 2003 to September 30, 2003 were $12.4 million, comprised of $9.7 million of natural gas revenues and $2.7 million of crude oil revenues. The average natural gas price for the period was $6.02 per mcf and $29.70 per bbl for crude oil. Royalties - Royalties for the reporting period were $3.1 million, an average rate of 25.4%. Natural gas royalties were $2.7 million, an average rate of 28% and crude oil royalties were $405,000 for an average rate of 15%. Operating expenses - Operating expenses for the period ended September 30, 2003 were $1.3 million. Natural gas operating expenses average $0.56 per mcf and crude oil expenses were $4.26 per bbl. On a boe basis, operating costs were $3.58 leaving NuVista in the top decile for oil and natural gas companies in its peer group. General and administrative - General and administrative expenses, net of overhead recoveries were $127,000 or $0.35 per boe for the period from July 2, 2003 to September 30, 2003. Included in these expenses is an allocation of $175,000 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, NuVista recorded a stock based non-cash compensation charge of $52,000 in connection with the issue of the Class B Performance shares. Interest expenses - Interest expenses for the reporting period were $244,000 or $0.68 per boe. Currently, NuVista's average borrowing rate is approximately 4%. Depreciation, depletion and site restoration expenses - Depreciation, depletion and site restoration expenses were $3.2 million for the period. The average unit cost was $8.92 per boe and is based on the allocation of Bonavista's net book value to NuVista, in accordance with the Plan of Arrangement. Income and other taxes - The provision for income and other taxes was $1.6 million. Included in income taxes for the period is a provision of $58,000 for the Large Corporations Tax. Capital expenditures - Capital expenditures were $7.5 million during the period and consisted of only exploration and development spending. These expenditures were considerably lower than the planned amount of approximately $13 million for the quarter because of the consolidation of the Amisk area drilling program into November and December 2003. This however did not prevent NuVista from achieving its production and cash flow targets for the current reporting period. Cash flow and net income - For the period from July 2, 2003 to September 30, 2003, NuVista's cash flow was $7.6 million or $0.21 per share. Net income during the period was $2.8 million or $0.08 per share. This results in a strong net income to cash flow ratio of almost 37% for the reporting period. Liquidity and capital resources - As at September 30, 2003, total bank debt (net of working capital) was $7.5 million, resulting in a debt to cash flow ratio of approximately 0.3 to 1. This results in NuVista having approximately $24.5 million of unused bank borrowing capability and combined with the equity issue completed in the quarter, NuVista has significant financial flexibility to carry out the capital programs for the fourth quarter of 2003 and fiscal 2004. BUSINESS RISKS AND OUTLOOK Six years ago, the management team of Bonavista embarked on a program of growing a solid, profitable oil and natural gas company by implementing a disciplined and managed approach to its drilling and acquisition programs. NuVista's management remains committed to the continuous application of this disciplined growth strategy. Over the remainder of 2003, NuVista plans to drill an additional 11 wells with an average working interest of almost 90%, resulting in approximately 28 net wells for the second half of 2003. Our undeveloped land base has grown to over 200,000 net acres as a result of land purchases at crown land sales and farm-in opportunities. Our increased drilling inventory coupled with our strong balance sheet position NuVista to continue posting strong operational and financial results for the remainder of 2003 and beyond. The Board of Directors of NuVista has approved 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 current production levels at 4,100 boe per day and continued expectations of exploration, development and acquisition success, NuVista is in an excellent position to exit 2003 at 4,400 boe per day and average between 5,400 and 5,800 boe per day in 2004. 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 will remain positioned to pursue additional strategic opportunities as they arise. Regardless of price volatility, NuVista has positioned itself to deliver profitable growth now and into the future. We remain unwavering in our commitment to enhance shareholder value by utilizing the broad depth and expertise of our dedicated team in a diligent and cost-effective manner. /T/Balance Sheet(thousands)                                                September 30,                                                                   2003----------------------------------------------------------------------------------------------------------------------------------------------                                                             (unaudited)AssetsAccounts receivable                                           $   2,488Oil and natural gas properties and equipment                     66,273Future tax asset                                                 10,174-----------------------------------------------------------------------                                                              $  78,935----------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Shareholders' EquityAccounts payable and accrued liabilities                      $   6,087Bank loan                                                         3,987-----------------------------------------------------------------------Total current liabilities                                        10,074Site restoration provision                                        1,113Shareholders' equity: Share capital                                                   64,980 Retained earnings                                                2,768-----------------------------------------------------------------------                                                                 67,748-----------------------------------------------------------------------                                                              $  78,935----------------------------------------------------------------------------------------------------------------------------------------------Statements of Operations and Retained Earnings(thousands, except per share amounts)                      Period ended                                                           September 30,                                                                2003 (1)----------------------------------------------------------------------------------------------------------------------------------------------                                                             (unaudited)Revenues: Production                                                    $ 12,399 Royalties, net of Alberta Royalty Tax Credit                    (3,129)-----------------------------------------------------------------------                                                                  9,270-----------------------------------------------------------------------Expenses: Operating                                                        1,287 General and administrative                                         127 Financing charges                                                  244 Stock based compensation expense                                    52 Depreciation, depletion and site restoration                     3,206-----------------------------------------------------------------------                                                                  4,916-----------------------------------------------------------------------Income before income and other taxes                              4,354 Income and other taxes                                           1,586-----------------------------------------------------------------------Net income                                                        2,768Retained earnings, beginning of period                                ------------------------------------------------------------------------Retained earnings, end of period                               $  2,768----------------------------------------------------------------------------------------------------------------------------------------------Net income per share - basic                                   $   0.08----------------------------------------------------------------------------------------------------------------------------------------------Net income per share - diluted                                 $   0.07----------------------------------------------------------------------------------------------------------------------------------------------(1) Period from July 2, 2003 to September 30, 2003Statement of Cash Flows(thousands)                                                Period ended                                                           September 30,                                                                 2003(1)----------------------------------------------------------------------------------------------------------------------------------------------(unaudited)Cash provided by (used in):Operating Activities: Net income                                                     $ 2,768 Items not requiring cash from operations:  Depreciation, depletion and site restoration                    3,206  Stock based compensation expense                                   52  Future income taxes                                             1,528----------------------------------------------------------------------- Cash flow from operations                                        7,554 Decrease in non-cash working capital items                       3,547-----------------------------------------------------------------------                                                                 11,101-----------------------------------------------------------------------Financing Activities: Issuance of share capital, net of share issue costs             17,526 Decrease in bank loan                                          (21,103)-----------------------------------------------------------------------                                                                 (3,577)-----------------------------------------------------------------------Investing Activities: Oil and natural gas properties and equipment additions          (7,523) Site restoration expenditures                                       (1)-----------------------------------------------------------------------                                                                 (7,524)-----------------------------------------------------------------------Decrease in cash                                                      -Cash, beginning of period                                             ------------------------------------------------------------------------Cash, end of period                                             $     -----------------------------------------------------------------------------------------------------------------------------------------------(1) Period from July 2, 2003 to September 30, 2003.NOTES TO INTERIM FINANCIAL STATEMENTS(unaudited)Period from July 2, 2003 to September 30, 2003./T/1. Significant accounting policies: As the determination of many assets, liabilities, revenues and expenses is dependent upon future events, the preparation of these financial statements requires the use of estimates and assumptions, which have been made using careful judgement. In the opinion of management, these financial statements have been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below. NuVista Energy Ltd., ("NuVista") was established with an effective date of July 2, 2003 under a Plan of Arrangement entered into by Bonavista Energy Trust (the "Trust"), Bonavista Petroleum Ltd. ("Bonavista") and NuVista. Under the Plan of Arrangement various assets of Bonavista, comprising certain producing and exploration assets were transferred to NuVista. As NuVista is a new entity, these financial statements reflect the results of operations for the period from July 2, 2003 to September 30, 2003. (a) Oil and natural gas operations: NuVista follows the full cost method of accounting, whereby all costs associated with the exploration for and development of oil and natural gas reserves are capitalized in cost centres on a country-by-country basis. Such costs include land acquisitions, drilling, well equipment and geological and geophysical activities. General and administrative costs are not capitalized. Gains or losses are not recognized upon disposition of oil and natural gas properties unless crediting the proceeds against accumulated costs would result in a change in the rate of depletion of 20 percent or more. Costs capitalized in the cost centres, including well equipment, together with estimated future capital costs associated with proven reserves, are depreciated and depleted using the unit-of-production method which is based on gross production and estimated proven oil and natural gas reserves as determined by independent engineers. The cost of significant unproven properties is excluded from the depreciation and depletion base. For purposes of the depreciation and depletion calculations, oil and natural gas reserves are converted to a common unit of measure on the basis of their relative energy content. Facilities are depreciated using the declining balance method over their useful lives, which range from 12 to 15 years. The provision for future site restoration costs are calculated using the unit-of-production method and is included within the provision for depreciation, depletion and site restoration. Costs are estimated each year by management based upon current regulations, costs, technology and industry standards. Actual costs as incurred are charged against the accumulated liability. In applying the full cost method, NuVista calculates a ceiling test which restricts the capitalized costs less accumulated depreciation and depletion from exceeding an amount equal to the estimated undiscounted value of future net revenues from proven oil and natural gas reserves, based on year end prices and costs, plus the cost, net of impairments, of unproved properties and after deducting estimated future site restoration costs, general and administrative expenses, financing costs and income taxes. (b) Joint venture accounting: A portion of NuVista's oil and natural gas operations is conducted jointly with others. Accordingly, the financial statements reflect only NuVista's proportionate interest in such activities. (c) Financial instruments: From time to time, NuVista may use swap agreements or other financial instruments to hedge its exposure to fluctuations in oil and natural gas prices. Gains and losses arising from these swap arrangements are reported as adjustments to the related revenue account over the term of the financial instrument. Financial instruments are not used for speculative purposes. The carrying values of NuVista's monetary assets and liabilities approximate their fair values. (d) Income taxes: NuVista follows the liability method of accounting for future income taxes. (e) Per share amounts: Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common shares. The treasury stock method is used to determine the dilutive effect of stock options and other dilutive instruments. 2. Transfer of assets and commencement of operations: Under the Plan of Arrangement, Bonavista transferred to NuVista certain assets, being certain producing and exploratory oil and natural gas properties in Bonavista's Eastern Core Region, and an allocation of bank loan. As this was a related party transaction, assets and liabilities were transferred at book value. Details are as follows: /T/-----------------------------------------------------------------------                                                                 Amount-----------------------------------------------------------------------(thousands)Oil and natural gas assets and equipment                       $ 61,825Future income tax asset                                          11,408-----------------------------------------------------------------------Total assets transferred                                         73,233Bank loan                                                       (29,103)Provision for site restoration and abandonment                     (983)-----------------------------------------------------------------------Net assets received and common shares issued                   $ 43,147----------------------------------------------------------------------------------------------------------------------------------------------/T/The above amounts are estimates, which were made by management at the time of the Plan of Arrangement based on information available at the time. Amendments may be made to these amounts as values subject to estimates are finalized. Under the Plan of Arrangement, NuVista entered into a Technical Services Agreement with the Trust. Under this agreement, the Trust receives payment for certain technical and administrative services provided to NuVista on a cost recovery basis. 3. Oil and natural gas properties and equipment: /T/-----------------------------------------------------------------------                                               Accumulated                                          depreciation and     Net book September 30, 2003                 Cost          depletion        value-----------------------------------------------------------------------(thousands)                                                   Oil and natural gas properties                    $ 52,937            $ 2,823     $ 50,114Facilities and well equipment                       16,411                252       16,159-----------------------------------------------------------------------                               $ 69,348            $ 3,075     $ 66,273----------------------------------------------------------------------------------------------------------------------------------------------/T/Unproved property costs of $9,837,000 as at September 30, 2003 were excluded from the depreciation and depletion calculation. During the period ended September 30, 2003, NuVista recorded a provision of $131,000 for site restoration in the financial statements. 4. Bank loan: NuVista has a $32 million revolving production loan facility with a syndicate of Canadian chartered banks, which provides that borrowings may be made by way of prime loans, bankers' acceptances and/or US dollar LIBOR advances. These advances bear interest at the banks' prime rate and/or at money market rates plus a stamping fee. The bank loan facility is secured by a first floating charge debenture, general assignment of book debts and NuVista's oil and natural gas properties and equipment. The facility is subject to an annual review by the lenders. 5.    Share capital: (a) Authorized: Unlimited number of voting Common Shares, Preferred Shares and 1,200,000 Class B Performance Shares. (b) Issued: (i) Common Shares /T/-----------------------------------------------------------------------                                                       Number       Amount-----------------------------------------------------------------------(thousands)   Outstanding as at July 2, 2003                       2,000     $  4,000 Issued pursuant to the Plan of Arrangement         32,839       43,147 Issued for cash                                     2,500       18,375 Costs associated with shares issued, net of  future tax benefit                                     -         (554)-----------------------------------------------------------------------Outstanding as at September 30, 2003                37,339     $ 64,968----------------------------------------------------------------------------------------------------------------------------------------------/T/(ii) Class B Performance Shares Each Class B Performance Share was sold for a price of $0.01 per share and is convertible into the fraction of a Common Share equal to the closing trading price of the Common Shares on the Toronto Stock Exchange on the day prior to such conversion less $2.00, if positive, divided by the Common Share closing price. The Class B Performance Shares will automatically convert into Common Shares as to 25% of the Class B Performance Shares outstanding on a pro-rata basis from holders on each of July 1, 2004, 2005, 2006 and 2007. If the NuVista Closing Price less $2.00 is not positive on any conversion date, NuVista will, subject to applicable law, redeem the Class B Performance Shares that would have otherwise been converted at the redemption price of $0.01 per share. The fair value of each Class B Performance Share was determined, at date of issuance, using the Black-Scholes model with the variables described in Note 5(e). This amount is amortized over the life of the Class B Performance Share and included in stock based compensation expense. /T/-----------------------------------------------------------------------                                                       Number    Amount-----------------------------------------------------------------------(thousands)Outstanding as at July 2, 2003                          1,200       $12 Redeemed                                                  (4)        ------------------------------------------------------------------------Outstanding as at September 30, 2003                    1,196       $12----------------------------------------------------------------------------------------------------------------------------------------------/T/(c)    Per share amounts: During the period from July 2, 2003 to September 30, 2003, there were 35,382,395 weighted average shares outstanding. On a diluted basis, there were 37,846,319 weighted average shares outstanding after giving effect for dilutive stock options. (d) Stock Options: NuVista has established a stock option plan whereby officers, directors, employees and service providers may be granted options to purchase Common Shares. Options granted vest at the rate of 25 percent per year and expire two years after the date of vesting to a maximum term of six years. The total stock options outstanding plus the Class B Performance Shares cannot exceed 10% of the outstanding Common Shares. Stock option summary of transactions for the period from July 2, 2003 to September 30, 2003 are as follows: /T/-----------------------------------------------------------------------                                                       Weighted average                                           Number        exercise price-----------------------------------------------------------------------Outstanding as at July 2, 2003    Granted                                1,354,000                $ 6.34 Exercised                                      -                     - Cancelled                                 (4,500)                 6.30-------------------------------------------------Outstanding, September 30, 2003         1,349,500                $ 6.34----------------------------------------------------------------------------------------------------------------------------------------------Exercisable, September 30, 2003                 -                     ----------------------------------------------------------------------------------------------------------------------------------------------- /T/(e) Stock-based compensation: NuVista uses the intrinsic value method to account for stock-based compensation costs. Under this method, no compensation costs are recorded in the financial statements for stock options granted. If the fair value based method had been used, the stock-based compensation costs, pro forma net income and pro forma net income per share would be as follows: /T/-----------------------------------------------------------------------Period from July 2, 2003 to September 30, 2003                   Amount-----------------------------------------------------------------------($ thousands, except per share amounts)Net income  As reported                                                     2,768  Pro forma                                                       2,607Net income per common share Basic  As reported                                                      0.08  Pro forma                                                        0.07 Diluted  As reported                                                      0.07  Pro forma                                                        0.07----------------------------------------------------------------------------------------------------------------------------------------------/T/The pro forma amounts include the compensation costs associated with stock options granted subsequent to July 2, 2003. The fair value of each option granted was estimated on the date of grant using the Modified Black-Scholes option pricing model. In the pricing model the fair value of stock options granted was $2.41 per share; risk free interest rate was 3.5%; volatility of 40%; and an expected life of 4.5 years. 6. Income taxes: The provision for income tax differs from the result of which would have been obtained by applying the combined Federal and Provincial income tax rate to the income before taxes. This difference results from the following items: /T/-----------------------------------------------------------------------Period from July 2, 2003 to September 30, 2003                   Amount-----------------------------------------------------------------------(thousands)Expected tax expense at 34.6%                                   $ 1,506Other                                                                22Capital taxes                                                        58-----------------------------------------------------------------------Provision for income taxes                                      $ 1,586----------------------------------------------------------------------------------------------------------------------------------------------The provision for income taxes consists of: Current                                                        $    58 Future                                                           1,528----------------------------------------------------------------------- Provision for income taxes                                     $ 1,586----------------------------------------------------------------------------------------------------------------------------------------------The significant components of future tax assets as at September 30,2003 are:-----------------------------------------------------------------------                                                                 Amount-----------------------------------------------------------------------(thousands)Oil and natural gas properties                                 $  9,495Facilities and well equipment                                       386Share issue costs                                                   293-----------------------------------------------------------------------Future tax asset                                               $ 10,174----------------------------------------------------------------------------------------------------------------------------------------------/T/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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