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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________
TO _____________
COMMISSION FILE NUMBER 0-9147
CANARGO ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-0881481
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
CanArgo Services (UK) Limited
150 Buckingham Palace Road, London, England SW1W 9TR
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(44) 207 808 4700
- --------------------------------------------------------------------------------
(Registrant's telephone number)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of registrant's common stock outstanding on June 30, 2002
was 97,356,206.
CANARGO ENERGY CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Unaudited Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Cash flows 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART 2. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index 23
(b) Reports on Form 8-K 26
Signatures 27
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
The United States Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for certain forward-looking statements. Such forward-looking
statements are based upon the current expectations of CanArgo and speak only as
of the date made. These forward-looking statements involve risks, uncertainties
and other factors. The factors discussed elsewhere in this Quarterly Report on
Form 10-Q are among those factors that in some cases have affected CanArgo's
historic results and could cause actual results in the future to differ
significantly from the results anticipated in forward looking statements made in
this Quarterly Report on Form 10-Q, future filings by CanArgo with the
Securities and Exchange Commission, in CanArgo's press releases and in oral
statements made by authorized officers of CanArgo. When used in this Quarterly
Report on Form 10-Q, the words "estimate," "project," "anticipate," "expect,"
"intend," "believe," "hope," "may" and similar expressions, as well as "will,"
"shall" and other indications of future tense, are intended to identify
forward-looking statements. Few of the forward-looking statements in this Report
deal with matters that are within our unilateral control. Acquisition, financing
and other agreements and arrangements must be negotiated with independent third
parties and, in some cases, must be approved by governmental agencies. These
third parties generally have interests that do not coincide with ours and may
conflict with our interests. Unless the third parties and we are able to
compromise their various objectives in a mutually acceptable manner, agreements
and arrangements will not be consummated.
- --------------------------------------------------------------------------------
2
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
Unaudited
---------------------------------
JUNE 30, December 31,
2002 2001
------------ --------------
ASSETS
Cash and cash equivalents $ 3,068,524 $ 5,891,292
Accounts receivable 1,084,417 2,097,221
Inventory 323,180 583,849
Prepayments 402,239 2,235,712
Other current assets 734,748 733,211
------------ --------------
Total current assets $ 5,613,108 $ 11,541,285
Capital assets, net (including unevaluated amounts of
$34,169,177 and $24,570,886, respectively) 65,612,659 57,684,710
Investments in and advances to oil and gas and other
ventures - net 810,339 1,085,922
------------ --------------
TOTAL ASSETS $ 72,036,106 $ 70,311,917
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,710,455 $ 1,069,419
Current portion of long term debt 620,223 392,408
Income taxes payable 82,660 90,456
Accrued liabilities 333,414 400,221
------------ --------------
Total current liabilities $ 2,746,752 $ 1,952,504
Long term debt 370,092 514,352
Provision for future site restoration 100,290 64,290
Minority shareholder advances 926,000 450,000
Minority interest in subsidiaries 1,617,499 1,531,191
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, par value $0.10 per share 9,735,620 9,200,845
Capital in excess of par value 145,151,475 144,057,517
Foreign currency translation adjustment 51,257 -
Accumulated deficit (88,662,879) (87,458,782)
------------ --------------
Total stockholders' equity $ 66,275,473 $ 65,799,580
------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 72,036,106 $ 70,311,917
============ ==============
See accompanying notes to unaudited consolidated condensed financial statements.
3
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Unaudited Three Months Ended Unaudited Six Months Ended
---------------------------- -----------------------------
JUNE 30, June 30, JUNE 30, June 30,
2002 2001 2002 2001
----------- ----------- ------------ -----------
Operating Revenues from Continuing Operations:
Oil and gas sales $ 825,515 $ 869,711 $ 2,463,444 $ 2,617,906
Refining and marketing 1,890,929 2,093,925 3,255,634 3,943,533
Other 154,648 - 1,398,153 -
----------- ----------- ----------- -----------
2,871,092 2,963,636 7,117,231 6,561,439
----------- ----------- ----------- -----------
Operating Expenses:
Field operating expenses 283,385 611,260 879,361 1,113,477
Purchases of crude oil and products 1,530,166 1,471,760 2,572,232 2,629,484
Refinery operating expenses - 76,619 - 197,025
Direct project costs 352,263 321,625 981,702 571,205
Selling, general and administrative 1,655,235 1,019,697 2,485,111 2,047,586
Depreciation, depletion and amortization 544,210 916,524 1,342,749 2,102,312
----------- ----------- ----------- -----------
4,365,259 4,417,485 8,261,155 8,661,089
----------- ----------- ----------- -----------
OPERATING LOSS FROM CONTINUING OPERATIONS (1,494,167) (1,453,849) (1,143,924) (2,099,650)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest, net (45,645) 112,057 (93,331) 503,213
Other 127,443 20,949 38,930 16,670
Equity income from investments 99,115 65,861 90,990 28,861
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 180,913 198,867 36,589 548,744
----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAX AND MINORITY INTEREST (1,313,255) (1,254,983) (1,107,335) (1,550,906)
Income taxes 26,848 - (10,454) -
Minority interest in income of consolidated
subsidiaries (4,733) 51,542 (86,308) 21,385
----------- ----------- ----------- -----------
NET LOSS $(1,291,139) $(1,203,440) $(1,204,097) $(1,529,521)
=========== =========== =========== ===========
Other Comprehensive Loss:
Foreign currency translation (51,257) - (51,257) -
----------- ----------- ----------- -----------
COMPREHENSIVE LOSS $(1,342,396) $(1,203,440) $(1,255,354) $(1,529,521)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 97,268,403 75,950,681 96,034,612 75,950,681
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE - BASIC $ (0.01) $ (0.02) $ (0.01) $ (0.02)
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE - DILUTED $ (0.01) $ (0.02) $ (0.01) $ (0.02)
----------- ----------- ----------- -----------
See accompanying notes to unaudited consolidated condensed financial statements.
4
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Unaudited Six Months Ended
---------------------------------
JUNE 30, June 30,
2002 2001
------------ ------------
Operating activities:
Net income (loss) $(1,204,097) $ (1,529,521)
Depreciation, depletion and amortization 1,342,749 2,102,312
Equity income from investments (90,990) (28,861)
Allowance for doubtful accounts 275,000 100,000
Minority interest in income of consolidated subsidiaries 86,308 (21,385)
Changes in assets and liabilities:
Accounts receivable 737,804 (434,158)
Inventory 260,669 (475,971)
Other current assets (1,537) (900,540)
Accounts payable 641,036 894,439
Income taxes payable (7,796) -
Accrued liabilities (66,807) (145,636)
Advances from joint venture partner - (5,711,000)
------------ ------------
NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES 1,972,339 (6,150,321)
------------ ------------
Investing activities:
Capital expenditures (9,183,441) (8,876,420)
Acquisitions, net of cash acquired - (4,044,973)
Proceeds from disposition of investment - 125,000
Investments in and advances to oil and gas and other
ventures 366,573 (589,232)
Change in non cash working capital items 1,833,473 (664,768)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (6,983,395) (14,050,393)
------------ ------------
Financing Activities:
Proceeds from sale of common stock 1,790,948 -
Share issue costs (162,215) -
Minority shareholder advances 476,000 -
Advances from minority interest - 1,806,874
Increase in long term debt 83,555 -
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,188,288 1,806,874
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,822,768) (18,393,840)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,891,292 29,697,267
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,068,524 $ 11,303,427
============ ============
See accompanying notes to unaudited consolidated condensed financial statements.
5
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 (UNAUDITED)
(1) Basis of Presentation
The interim consolidated condensed financial statements and notes
thereto of CanArgo Energy Corporation and its subsidiaries
(collectively, CanArgo) have been prepared by management without audit.
In the opinion of management, the consolidated condensed financial
statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results for the
interim period. The accompanying consolidated condensed financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in CanArgo's Annual
Report on Form 10-K for the year ended December 31, 2001 filed with the
Securities and Exchange Commission. All amounts are in U.S. dollars.
Certain items in the consolidated condensed financial statements have
been reclassified to conform to the current year presentation. There
was no effect on net loss as a result of these reclassifications.
During 2002, the Company adopted the self-sustaining method of
accounting for CanArgo Standard Oil Products. The adoption of the
self-sustaining method was necessitated by the fact that CanArgo
Standard Oil Products was no longer financially and operationally
dependant upon its parent company. Under the self-sustaining method of
foreign currency translation, assets and liabilities are translated
into US dollars at period end exchange rates and income and expenses
are translated into US dollars at average rates in effect during the
period. Exchange gains and losses on translation are reflected as a
separate component of shareholders' equity.
(2) Need for Significant Additional Capital, Possible Impairment of Assets
CanArgo has incurred recurring operating losses, and its current
operations are not generating positive cash flows. The ability of
CanArgo to continue as a going concern and to pursue its principal
activities of acquiring interests in and developing oil and gas fields
is dependent upon CanArgo reducing costs, generating funds from
internal sources including the sale of certain non-core assets,
external sources and, ultimately, achieving sufficient positive cash
flows from operating activities.
In order to preserve available cash resources while still maintaining
essential field operations and development activities in Georgia, a
significant cost reduction plan is being implemented. External sources
of funding are also being pursued. Should such funding not be
forthcoming and CanArgo be unable to sell some or all of its non-core
assets, further cost reductions will be required in order for CanArgo
to remain a going concern.
Development of the oil and gas properties and ventures in which CanArgo
has interests involves multi-year efforts and substantial cash
expenditures. Full development of these properties will require the
availability of substantial funds from external sources. CanArgo
believes that it will be able to generate funds from external sources
including quasi-governmental financing agencies, conventional lenders,
equity investors and other oil and gas companies that may desire to
participate in CanArgo's oil and gas projects, although no firm funding
commitments have been received.
Ultimate realization of the carrying value of CanArgo's oil and gas
properties will require production of oil and gas in sufficient
quantities and marketing such oil and gas at sufficient prices to
provide positive cash flow to CanArgo. This is dependent upon, among
other factors, achieving significant production at costs that provide
acceptable margins, reasonable levels of taxation from local
authorities and the ability to market the oil and gas produced at or
near world prices. In addition, CanArgo must mobilize drilling
equipment and personnel to initiate drilling, completion and production
activities. If one or more of the
6
above factors, or other factors, are different than anticipated,
CanArgo may not recover the carrying value of its oil and gas
properties.
CanArgo generally has the principal responsibility for arranging
financing for the oil and gas properties and ventures in which it has
an interest. There can be no assurance, however, that CanArgo or the
entities that are developing the oil and gas properties and ventures
will be able to arrange the financing necessary to develop the projects
being undertaken or to support the corporate and other activities of
CanArgo or that such financing if available will be on terms that are
acceptable to or are deemed to be in the best interests of CanArgo,
such entities or their respective stockholders or participants.
The consolidated financial statements of CanArgo do not give effect to
any additional impairment in the value of CanArgo's oil and gas
properties and ventures or other adjustments that would be necessary if
financing cannot be arranged for the development of such properties and
ventures or if they are unable to achieve profitable operations.
Failure to arrange such financing on reasonable terms or failure of
such properties and ventures to achieve profitability would have a
material adverse effect on the financial position, including
realization of assets, results of operations, cash flows and prospects
of CanArgo.
(3) Foreign Operations
CanArgo's future operations and earnings will depend upon the results
of CanArgo's operations in the Republic of Georgia, the Ukraine and
Russia. There can be no assurance that CanArgo will be able to
successfully conduct such operations, and a failure to do so would have
a material adverse effect on CanArgo's financial position, results of
operations and cash flows. Also, the success of CanArgo's operations
will be subject to numerous contingencies, some of which are beyond
management control. These contingencies include general and regional
economic conditions, prices for crude oil and natural gas, competition
and changes in regulation. Since CanArgo is dependent on international
operations, CanArgo will be subject to various additional political,
economic and other uncertainties. Among other risks, CanArgo's
operations may be subject to the risks and restrictions on transfer of
funds, import and export duties, quotas and embargoes, domestic and
international customs and tariffs, and changing taxation policies,
foreign exchange restrictions, political conditions and regulations.
(4) Inventory
Inventory at June 30, 2002 and December 31, 2001 consisted of the
following:
JUNE 30, December 31,
2002 2001
-------- ------------
Crude oil $ 87,402 $373,818
Refined products 235,778 210,031
-------- --------
$323,180 $583,849
======== ========
7
(5) Capital Assets, Net
Capital assets, net of accumulated depreciation and impairment, at
June 30, 2002 and December 31, 2001 include the following:
JUNE 30, December 31,
2002 2001
---------------------------------------------------- --------------
ACCUMULATED
DEPRECIATION
AND NET NET
COST IMPAIRMENT CAPITAL ASSETS CAPITAL ASSETS
----------- ------------ -------------- --------------
OIL AND GAS PROPERTIES
Proved properties $31,900,462 $16,224,771 $15,675,691 $16,669,691
Unproved properties 34,169,177 - 34,169,177 24,570,886
----------- ----------- ----------- -----------
66,069,639 16,224,771 49,844,868 41,240,577
PROPERTY AND EQUIPMENT
Oil and gas related
equipment 12,374,219 3,476,868 8,897,351 10,621,771
Office furniture,
fixtures and
equipment and other 1,087,047 561,506 525,541 562,221
----------- ----------- ----------- -----------
13,461,266 4,038,374 9,422,892 11,183,992
REFINING AND MARKETING 10,551,147 4,206,248 6,344,899 5,260,141
----------- ----------- ----------- -----------
TOTAL $90,082,052 $24,469,393 $65,612,659 $57,684,710
=========== =========== =========== ===========
Unproved property additions relate to CanArgo's exploration activity in
the period. Oil and gas related equipment includes new or refurbished
drilling rigs and related equipment, all of which are in the Republic
of Georgia.
8
(6) Investments in and Advances to Oil and Gas and Other Ventures
CanArgo has acquired interests in oil and gas and other ventures
through less than majority interests in corporate and corporate-like
entities. A summary of CanArgo's net investment in and advances to oil
and gas and other ventures at June 30, 2002 and December 31, 2001 is
set out below:
JUNE 30, December 31,
INVESTMENTS IN AND ADVANCES TO OIL AND GAS AND OTHER VENTURES 2002 2001
----------- ------------
Ukraine - Stynawske Field, Boryslaw
Through 45% ownership of Boryslaw Oil Company $ 6,613,603 $ 6,698,062
Republic of Georgia - Ninotsminda
Through an effective 50% ownership of East Georgian Pipeline Co. - 192,500
Other Investments 159,500 441,614
----------- -----------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS AND OTHER VENTURES $ 6,773,103 $ 7,332,176
----------- -----------
EQUITY IN PROFIT (LOSS) OF OIL AND GAS AND OTHER VENTURES
Ukraine - Stynawske Field, Boryslaw (502,971) (593,961)
Republic of Georgia - East Georgian Pipeline Co. - (192,500)
----------- -----------
CUMULATIVE EQUITY IN PROFIT (LOSS) OF OIL AND GAS
AND OTHER VENTURES $ (502,971) $ (786,461)
IMPAIRMENT - STYNAWSKE FIELD, BORYSLAW (5,459,793) (5,459,793)
----------- -----------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS
AND OTHER VENTURES, NET OF EQUITY LOSS AND IMPAIRMENT $ 810,339 $ 1,085,922
=========== ===========
Under the terms of the license Boryslaw Oil Company holds in the
Stynawske field, field operations were to be transferred to Boryslaw
Oil Company effective January 1, 1999. As a result of prolonged
negotiations which created significant uncertainty as to CanArgo's
ability to raise funds for the project or enter into a satisfactory
farm-out agreement on a timely basis, CanArgo recorded in the third
quarter of 1999 an impairment charge of $5,459,793 against its entire
investment in and advances to Boryslaw Oil Company.
In 2001 an agreement was reached to undertake a limited investment and
development program by June 2002 in respect of Boryslaw Oil Company to
increase production and to meet certain work commitments under the
Stynawske field licence. These obligations have not been fully met,
however, Boryslaw Oil Company is seeking modifications to the licence
to allow a proper assessment of the workovers and development plans
completed to date. A repayment schedule of CanArgo's advances to
Boryslaw Oil Company has also been agreed of which $120,000 was repaid
by June 30, 2002. Boryslaw Oil Company has so far not been given notice
by the Ukrainian licensing body of early termination of the license.
CanArgo is actively seeking to farm-out part of its interest in
Boryslaw Oil Company in return for finance to carry out the work
programme. If Boryslaw Oil Company does not proceed with the Stynawske
field development programme or if modifications to the current licence
agreement cannot be obtained, it may be in breach of obligations it has
with regard to the field license and an impairment charge against
CanArgo's investment in and advances to Boryslaw Oil Company may be
required.
Other investments include CanArgo's 10% interest in a Caspian Sea
exploration project and three petrol station sites in Tbilisi, Georgia
in which CanArgo has a 50% non-controlling interest. CanArgo accounts
for its interest in the three petrol station sites using the equity
method and consolidates the remaining sixteen sites in which it has
controlling interest. In 2002, CanArgo purchased the remaining 50% of
Petro-
9
Invest, a petrol station site in which CanArgo previously held a
50% non-controlling interest. This site in now consolidated in
CanArgo's financial statements.
In 2002, two of the three petrol station sites that CanArgo has a 50%
non-controlling interest had entered into credit facility agreements of
$250,000 and $100,000 respectively with a commercial lender in Georgia.
In May 2002, the full amount of the facilities were drawn and as at
June 30, 2002, $350,000 under the facilities were outstanding. The
loans bear interest at 18% per annum and are secured by the assets of
the petrol stations. The full amount of the loans are be repaid by June
2004. No company guarantees have been provided by CanArgo with respect
to these loans.
CanArgo's ventures are in the development stage. Accordingly,
realization of these investments is dependent upon successful
development of and ultimately cash flows from operations of the
ventures.
(7) Accrued Liabilities
Accrued liabilities at June 30, 2002 and December 31, 2001 include the
following:
JUNE 30, December 31,
2002 2001
-------- ------------
Professional fees $ 37,600 $150,000
Operating costs - 90,000
Refinery closure costs 125,000 -
Other 170,814 160,221
-------- --------
$333,414 $400,221
======== ========
As at December 31, 2001 $90,000 was accrued for liabilities relating
to the winding up of East Georgian Pipeline Company.
(8) Long Term Debt
Bank loans at June 30, 2002 and December 31, 2001 include the
following:
JUNE 30, December 31,
2002 2001
-------- ------------
Outstanding bank loans $ 990,315 $ 906,760
Less current portion (620,223) (392,408)
--------- ---------
Long term debt $ 370,092 $ 514,352
========= =========
In November 2001, CanArgo Standard Oil Products Limited entered into a
$1 million credit facility agreement, and in May 2002 a further
$240,000 credit facility agreement, with a commercial lender in Georgia
to fund further expansion of its petrol station network. In 2001, the
full amount of the first facility was drawn and in 2002 $180,000 of the
second facility was drawn. As at June 30, 2002, $990,315 of the total
facility was outstanding. The loans bear interest at 18% per annum and
are secured by the assets of three petrol stations. The full amount of
the first loan is to be repaid by December 2003 and the second loan by
November 2004 . No parent company guarantees have been provided by
CanArgo with respect to these loans.
(9) Minority Shareholder Advances
In 2001 CanArgo received $450,000 and in 2002, $476,000 on issuance of
convertible loans from future shareholders of CanArgo's subsidiary,
CanArgo Norio Limited ("Norio"). The cash amount received represents
part of the future shareholders share of the cost of drilling an
exploration well under the Norio
10
and North Kumisi production sharing agreement. The convertible loans
are non interest bearing and will convert into ordinary share capital
of Norio 30 days after the final cost of the well is known. It is at
this point when the final ownership interest in Norio will be
determined and consequently the $926,000 received to June 30, 2002 and
any subsequent advances from the future shareholders towards the cost
of the well will be reclassified as minority interest.
(10) Stockholders' Equity
COMMON STOCK
-------------------------
NUMBER OF
SHARES ADDITIONAL FOREIGN TOTAL
ISSUED AND PAID-IN CURRENCY ACCUMULATED STOCKHOLDERS'
ISSUABLE PAR VALUE CAPITAL TRANSLATION DEFICIT EQUITY
----------- ---------- ------------ ----------- ------------ ------------
TOTAL, DECEMBER 31, 2001 92,008,446 $9,200,845 $144,057,517 $ - $(87,458,782) $65,799,580
Less shares issuable at
beginning of period (148,826) (14,883) (279,436) - - (294,319)
Issuance of common stock upon
Exchange of CanArgo Oil & Gas
Inc. Exchangeable Shares 148,826 14,883 279,436 - - 294,319
Issuance of common stock
pursuant to February private
placement 5,210,000 521,000 1,241,433 - - 1,762,433
Issuance of common stock
pursuant to May private
placement 137,760 13,775 14,740 - - 28,515
Share issue costs - - (162,215) - - (162,215)
Current year adjustment 51,257 51,257
Net loss - - - - (1,204,097) (1,204,097)
---------- ---------- ------------ ------- ------------ -----------
TOTAL, JUNE 30, 2002 97,356,206 $9,735,620 $145,151,475 $51,257 $(88,662,879) $66,275,473
========== ========== ============ ======= ============ ===========
On May 24, 2002 CanArgo acquired all of the Exchangeable Shares of
CanArgo Oil & Gas Inc. for shares of CanArgo Common Stock on a
share-for-share basis.
(11) Net Loss Per Common Share
Basic and diluted net loss per common share for the six month periods
ended June 30, 2002 and 2001 are based on the weighted average number
of common shares outstanding during those periods. The weighted average
numbers of shares issued and issuable without receipt of additional
consideration for the six month periods ended June 30, 2002 and 2001
are 96,034,612 and 75,950,681 respectively. Options to purchase
CanArgo's common stock were outstanding at June 30, 2002 but were not
included in the computation of diluted net loss per common share
because the effect of such inclusion would have been anti-dilutive.
(12) Commitments and Contingencies
OIL AND GAS PROPERTIES AND INVESTMENTS IN OIL AND GAS VENTURES
Current drilling obligations with respect to CanArgo's oil and gas
properties include, under the second phase of the preliminary work
programme for the Norio and Nazvrevi/Block XIII production sharing
contracts, the drilling of one well, unless CanArgo decides to
terminate the contracts.
11
CanArgo has contingent obligations and may incur additional
obligations, absolute and contingent, with respect to acquiring and
developing oil and gas properties and ventures. At June 30, 2002,
CanArgo had the contingent obligation to issue an aggregate of 187,500
shares of its common stock, subject to the satisfaction of conditions
related to the achievement of specified performance standards by the
Stynawske field project.
The shareholders agreement with the other shareholder of Norio calls
for a bonus payment of $800,000 to be paid by CanArgo should commercial
production be obtained from the Middle Eocene or older strata and a
second bonus payment of $800,000 should production from the Block from
the Middle Eocene or older strata exceed 250 tonnes of oil per day over
any 90 day period.
(13) Segment Information
Operating revenues for the six month periods ended June 30, 2002 and
2001 by geographical area were as follows:
JUNE 30, June 30,
2002 2001
---------- ----------
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
Eastern Europe $2,463,444 $3,524,451
REFINING AND MARKETING
Eastern Europe 3,255,634 3,943,533
OTHER
Eastern Europe 1,398,153 -
INTERSEGMENT ELIMINATIONS - (906,545)
---------- ----------
TOTAL $7,117,231 $6,561,439
========== ==========
Other Eastern Europe operating revenue relates to income from the hire
of CanArgo equipment.Operating income (loss) for the six month periods
ended June 30, 2002 and 2001 by geographical area was as follows:
JUNE 30, June 30,
2002 2001
----------- -----------
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
Eastern Europe $ 1,841,009 $ 673,245
REFINING AND MARKETING
Eastern Europe 358,618 15,322
CORPORATE AND OTHER EXPENSES (3,343,551) (2,403,030)
INTERSEGMENT ELIMINATIONS - (385,187)
----------- -----------
TOTAL OPERATING INCOME (LOSS) $(1,143,924) $(2,099,650)
=========== ===========
12
Net income (loss) before minority interest for the six month periods
ended June 30, 2002 and 2001 by geographic area was as follows:
JUNE 30, June 30,
2002 2001
----------- -----------
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
Eastern Europe $ 1,841,009 $ 664,746
REFINING AND MARKETING
Eastern Europe 170,970 (46,659)
CORPORATE AND OTHER EXPENSES 3,129,768) (1,783,806)
INTERSEGMENT ELIMINATIONS - (385,187)
----------- -----------
NET INCOME (LOSS) BEFORE MINORITY INTEREST $(1,117,789) $(1,550,906)
=========== ===========
Identifiable assets as of June 30, 2002 and December 31, 2001 by
business segment and geographical area were as follows:
JUNE 30, December 31,
2002 2001
----------- ------------
CORPORATE
Eastern Europe $ 949,071 $ 3,926,930
Western Europe 4,664,037 8,163,244
TOTAL 5,613,108 12,090,174
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
Eastern Europe 59,267,760 52,424,569
REFINING AND MARKETING
Eastern Europe 6,344,899 4,711,252
OTHER ENERGY PROJECTS
Eastern Europe 810,339 1,085,922
----------- -----------
IDENTIFIABLE ASSETS - TOTAL $72,036,106 $70,311,917
=========== ===========
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
QUALIFYING STATEMENT WITH RESPECT TO FORWARD-LOOKING INFORMATION
THE FOLLOWING INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS. SEE
"FORWARD-LOOKING STATEMENTS" BELOW AND ELSEWHERE IN THIS REPORT.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, CanArgo had working capital of $2,866,000 compared to
working capital of $9,589,000 as of December 31, 2001. The $6,723,000 decrease
in working capital from December 31, 2001 to June 30, 2002 is principally due to
a reduction in cash and prepayments related to capital expenditures on the
Ninotsminda, Manavi and Norio projects.
As a result of unexpected mechanical difficulties drilling wells M11 and Norio
72 and delays in testing well N100, capital expenditures have exceeded initial
estimates and production volumes available for sale are less than anticipated.
These events have resulted in lower than expected cash resources from which
CanArgo can continue its development activities in Georgia. In order to preserve
available cash resources while still maintaining essential field operations and
development activities in Georgia, a significant cost reduction plan is being
implemented. Both direct project and general and administrative costs are to be
reduced. CanArgo's management believes that these reductions together with a
prepayment on the sale of crude oil, the selective sale of certain non-core
assets including CanArgo's generator and a portion or all of CanArgo's drilling
equipment should provide CanArgo the working capital necessary to cover
CanArgo's immediate and near term funding requirements with respect to its
activities in the Republic of Georgia. Provided funds are available, immediate
and near term development plans include the completion of testing of well N100
and the continued drilling of wells M11 and Norio 72, two deep exploration
wells. CanArgo has temporarily suspended further drilling of well M11 below its
current casing point in order to fully review available technical data, and
estimate the cost to complete the well. While drilling of well Norio 72
continues, completion of drilling of this well will be dependent upon partners
continuing to fund their share of costs of this well and no new technical
difficulties.
Existing cash and cash equivalents at June 30, 2002, are also not sufficient to
adequately finance the immediate or near term development of the Bugruvativske
field in Eastern Ukraine. Both the Bugruvativske field and the Stynawske field
in Western Ukraine are in the early stage of evaluation and development and are
themselves relatively new to CanArgo and additional financing will be required
to fully develop and exploit these fields. In addition, CanArgo is in the
process of establishing its own administrative and finance infrastructure in the
Ukraine. Establishment of this infrastructure may result in a diversion,
temporary or otherwise, of time and other resources from other operating
activities.
According to publicly available information at the time of CanArgo's acquisition
of LVR, LVR negotiated and concluded with Ukrnafta, the Ukrainian State Oil
Company, a Joint Investment Production Activity (JIPA) agreement in 1998 to
develop the Bugruvativske field in Eastern Ukraine. To date, neither of the
parties has fulfilled their initial contribution requirements which may result
in Ukrnafta exercising any rights it might have to terminate and cancel the
Joint Investment Production Activity agreement. In addition, certain other
aspects of Lateral Vector's interest in the field under the Joint Investment
Production Agreement remain to be determined. We are presently in discussions
with Ukrnafta regarding these matters and there is no assurance that such
discussions will be successfully concluded. CanArgo is actively seeking to
farm-out part of its interest in the JIPA in return to initiate the JIPA and
begin development of the Bugruvativske field. Based on discussions to date,
CanArgo believes that a farm-in partner would be willing to take an interest in
the project, although no assurance can be given that a farm-in to the JIPA would
be on attractive or acceptable terms.
In 2001 an agreement was reached to undertake a limited investment and
development program by June 2002 in respect of Boryslaw Oil Company to increase
production and to meet certain work commitments under the Stynawske field
licence. These obligations have not been fully met, however, Boryslaw Oil
Company is seeking modifications to the licence agreement to allow a proper
assessment of the workovers and development plans completed to date. A repayment
schedule of CanArgo's advances to Boryslaw Oil Company has also been agreed of
which $120,000 was repaid by June 30, 2002. Boryslaw Oil Company has so far not
been given notice by the Ukrainian licensing body of early termination of the
license. CanArgo is actively seeking to farm-out part of its
14
interest in Boryslaw Oil Company in return for finance to carry out the work
programme. If Boryslaw Oil Company does not proceed with the Stynawske field
development programme or if modifications to the current licence agreement
cannot be obtained, it may be in breach of obligations it has with regard to the
field license and an impairment charge against CanArgo's investment in and
advances to Boryslaw Oil Company may be required.
Despite limited funding an assessment of both the Bugruvativske and Stynawske
fields and preparation of a development program with Ukrnafta continues. Based
on its efforts to date and should funding be available, CanArgo plans to
significantly increase production from these fields by investing in both
remedial workover activity and potential infill drilling, horizontal drilling
and pressure maintenance utilising appropriate technologies.
While a considerable amount of infrastructure for the Ninotsminda, Bugruvativske
and Stynawske fields has already been put in place, CanArgo cannot provide
assurance that:
o for the Bugruvativske and Stynawske fields, an adequate investment
agreement and development plan can be put in place;
o funding of field development plans will be timely;
o that development plans will be successfully completed or will increase
production; or
o that field operating revenues after completion of the development plan
will exceed operating costs.
To pursue existing projects beyond CanArgo's immediate development plan and to
pursue new opportunities, CanArgo will require additional capital. While
expected to be substantial, without further exploration work and evaluation the
exact amount of funds needed to fully develop all of our oil and gas properties
cannot at present, be qualified. Potential sources of funds include additional
equity, project financing, debt financing and the participation of other oil and
gas entities in CanArgo's projects. Based on CanArgo's past history of raising
capital and continuing discussions including those with major stockholders,
investment bankers and other institutions, CanArgo believes that such required
funds may be available. However, there is no assurance that such funds will be
available, and if available, will be offered on attractive or acceptable terms.
Should such funding not be forthcoming and CanArgo be unable to sell some or all
of its non-core assets, further cost reductions will be required in order for
CanArgo to remain a going concern.
Development of the oil and gas properties and ventures in which CanArgo has
interests involves multi-year efforts and substantial cash expenditures. Full
development of CanArgo's oil and gas properties and ventures will require the
availability of substantial additional financing from external sources. CanArgo
also may, where opportunities exist, seek to transfer portions of its interests
in oil and gas properties and ventures to entities in exchange for such
financing. CanArgo generally has the principal responsibility for arranging
financing for the oil and gas properties and ventures in which it has an
interest. There can be no assurance, however, that CanArgo or the entities that
are developing the oil and gas properties and ventures will be able to arrange
the financing necessary to develop the projects being undertaken or to support
the corporate and other activities of CanArgo. There can also be no assurance
that such financing as is available will be on terms that are attractive or
acceptable to or are deemed to be in the best interest of CanArgo, such entities
and their respective stockholders or participants.
Ultimate realization of the carrying value of CanArgo's oil and gas properties
and ventures will require production of oil and gas in sufficient quantities and
marketing such oil and gas at sufficient prices to provide positive cash flow to
CanArgo. Establishment of successful oil and gas operations is dependent upon,
among other factors, the following:
o mobilization of equipment and personnel to implement effectively
drilling, completion and production activities;
o achieving significant production at costs that provide acceptable
margins;
o reasonable levels of taxation, or economic arrangements in lieu of
taxation in host countries; and
o the ability to market the oil and gas produced at or near world
prices.
Subject to the raising of additional capital, above, CanArgo has plans to
mobilize resources and achieve levels of production and profits sufficient to
recover the carrying value of its oil and gas properties and ventures. However,
if one or more of the above factors, or other factors, are different than
anticipated, these plans may not be realized, and CanArgo may not recover the
carrying
15
value of its oil and gas properties and ventures. CanArgo will be entitled to
distributions from the various properties and ventures in which it participates
in accordance with the arrangements governing the respective properties and
ventures.
STATEMENT OF CASH FLOWS
Cash and cash equivalents decreased by $2,822,000 to $3,069,000 at June 30, 2002
from $5,891,000 at December 31, 2001. The decrease was primarily due to the cost
of the Manavi and Norio exploration programmes currently underway in Georgia.
Accounts receivable decreased by $1,013,000 to $1,084,000 at June 30, 2002 from
$2,097,000 at December 31, 2001. The decrease is primarily a result of the
receipt of $1,000,000 from AES relating to the termination of AES's
participation in a three well exploration programme, an increase in allowance
for a doubtful debt of $275,000 generated from gas sales to the Rustavi Plant in
Georgia, offset partially by accounts receivable related to rental income
generated in 2002.
Inventory decreased by $261,000 to $323,000 at June 30, 2002 from $584,000 at
December 31, 2001 primarily as result of the sale of oil by Ninotsminda Oil
Company from storage. Approximately 18,000 barrels of oil were held in storage
by Ninotsminda Oil Company at June 30, 2002 for sale to the Georgian domestic,
region or international market.
Prepayments decreased by $1,834,000 to $402,000 at June 30, 2002 from $2,236,000
at December 31, 2001 primarily as a result of receipt of materials and services
related to CanArgo's exploration activities transferred to capital assets in the
period. This decrease is included in the statement of cash flows as an investing
activity.
Capital assets, net increased to $65,613,000 at June 30, 2002 from $57,685,000
at December 31, 2001, primarily as a result of investment of $9,183,000 in
capital assets including oil and gas properties and equipment, principally
related to the Ninotsminda and Norio fields.
Investments in and advances to oil and gas and other ventures, net decreased to
$810,000 at June 30, 2002 from $1,086,000 at December 31, 2001. The decrease
reflects repayments by Boryslaw Oil Company of CanArgo's advances in 2001 and
the purchase and subsequent consolidation of a petrol station that CanArgo
previously had a 50% non-controlling interest in. This was partially offset by
an increase in equity income related to CanArgo's investment in Boryslaw Oil
Company.
Accounts payable increased by $641,000 to $1,710,000 at June 30, 2002 from
$1,069,000 at December 31, 2001 due to an increase in payables relating to
petrol station construction activity.
To fund construction of new petrol stations in Georgia, a short term bank loan
was drawn by CanArgo Standard Oil Products in Tbilisi, Georgia at an effective
interest rate of 18% per annum.
Accrued liabilities decreased by $67,000 to $333,000 at June 30, 2002 from
$400,000 at December 31, 2001 as identified in note 7 to the unaudited
consolidated financial statements.
Long term debt decreased by $144,000 to $370,000 at June 30, 2002 from $514,000
at December 31, 2001. The decrease in long term debt is due to repayments in the
period of the credit facility and reclassification of long term debt as current.
Minority shareholder advances increased by $476,000 to $926,000 at June 30, 2002
from $450,000 at December 31, 2001 due to the receipt of convertible loans from
future shareholders of CanArgo's subsidiary, CanArgo Norio Limited ("Norio").
The cash amount received represents part of the future shareholders share of the
cost of drilling an exploration well under the Norio and North Kumisi production
sharing agreement ("PSA").
The convertible loans are non interest bearing and will convert into ordinary
share capital of CanArgo Norio Limited 30 days after the final cost of the well
is known. When final ownership interest in CanArgo Norio Limited is determined
minority shareholder advances will be reclassified as minority interest. CanArgo
anticipates increasing its interest to over 60% in CanArgo Norio Limited through
an increased level of funding of this well.
16
Minority interest in subsidiaries increased to $1,617,000 at June 30, 2002
compared to $1,531,000 at December 31, 2001 due to minority interest
shareholders share of income in the period. CanArgo consolidates its 50%
interest in CanArgo Standard Oil Products as it has the ability to control the
strategic operating and financial activities of the joint venture. The remaining
50% interest in CanArgo Standard Oil Products is held by Standard Oil Products
of Georgia and an individual, Mr. Levan Pkhakazde, who is one of the founders of
Standard Oil Products.
On February 12, 2002, CanArgo completed an offering of 5,210,000 common shares
at NOK 2.95 per share (approximately US$0.33 per share) to a financial
institution and qualified purchasers for gross proceeds of approximately
$1,762,000 in transactions intended to qualify for an exemption from
registration under the Securities Act of 1933 afforded by Regulation S
promulgated thereunder.
On May 28, 2002, CanArgo completed an offering of 137,760 common shares at NOK
1.68 per share (approximately US$0.21 per share) to David Robson, CanArgo's
Chief Executive Officer, for gross proceeds of approximately $29,000. The shares
have not been registered under the Securities Act of 1933 and are "restricted"
as that term is defined in Rule 144 under the Securities Act. The shares may not
be offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption from registration under the Securities Act, the availability of which
is to be established to the satisfaction of CanArgo.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL TERMS
CanArgo has contingent obligations and may incur additional obligations,
absolute or contingent, with respect to the acquisition and development of oil
and gas properties and ventures in which it has interests that require or may
require CanArgo to expend funds and to issue shares of its Common Stock. At June
30, 2002, CanArgo had a contingent obligation to issue 187,500 shares of common
stock to a third party upon satisfaction of conditions relating to the
achievement of specified Stynawske field project performance standards. As
CanArgo develops current projects and undertakes other projects, it could incur
significant additional obligations.
Current drilling obligations with respect to CanArgo's oil and gas properties
include, under the second phase of the preliminary work programme for the Norio
and Nazvrevi/Block XIII production sharing contracts, the drilling of one well,
unless CanArgo decides to terminate the contracts. The second phase of the
preliminary work programme under the Norio and North Kumisi production sharing
agreement is currently underway with the commencement in January 2002 of the
first exploration well at an estimated cost of up to $4.2 million of which
CanArgo's estimated share of costs is $3.2 million.
In 2001 an agreement was reached to undertake a limited investment and
development program by June 2002 in respect of Boryslaw Oil Company to increase
production and to meet certain work commitments under the Stynawske field
licence. These obligations have not been fully met, however, Boryslaw Oil
Company is seeking modifications to the licence agreement to allow a proper
assessment of the workovers and development plans completed to date. A repayment
schedule of CanArgo's advances to Boryslaw Oil Company has also been agreed of
which $120,000 was repaid by June 30, 2002. Boryslaw Oil Company has so far not
been given notice by the Ukrainian licensing body of early termination of the
license. CanArgo is actively seeking to farm-out part of its interest in
Boryslaw Oil Company in return for finance to carry out the work programme. If
Boryslaw Oil Company does not proceed with the Stynawske field development
programme or if modifications to the current licence agreement cannot be
obtained, it may be in breach of obligations it has with regard to the field
license and an impairment charge against CanArgo's investment in and advances to
Boryslaw Oil Company may be required.
The shareholders agreement with the other shareholder of Norio calls for a bonus
payment of $800,000 to be paid by CanArgo should commercial production be
obtained from the Middle Eocene or older strata and a second bonus payment of
$800,000 should production from the Block from the Middle Eocene or older strata
exceed 250 tonnes of oil per day over any 90 day period.
In August 2002, Ninotsminda Oil Company entered into a 12 month crude oil sales
agreement to sell its monthly share of oil produced under the Ninotsminda
production sharing contract. As security for payment the buyer will pay to
Ninotsminda Oil Company $1 million to be repaid by Ninotsminda Oil Company at
the end of the twelve month period through the delivery of additional crude oil
equal to the value of the security. Under the agreement, crude oil will be sold
at dated Brent less a fixed discount per barrel depending on the Brent price.
The discount ranges from a minimum of $6.00 per barrel when dated price is less
than $15.00 per barrel to a maximum $7.50 per barrel when dated Brent is greater
than $25.01 per barrel.
17
RESULTS OF OPERATIONS
Six Month Period Ended June 30, 2002 Compared to Six Month Period Ended June 30,
2001
CanArgo recorded operating revenue of $7,117,000 during the six month period
ended June 30, 2002 compared with $6,561,000 for the six month period ended June
30, 2001. The increase is attributable to rental of CanArgo equipment in
Georgia, offsetting declines in oil and gas and refining and marketing revenues.
Ninotsminda Oil Company generated $2,410,000 of revenue in the six month period
ended June 30, 2002 compared with $2,618,000 for the six month period ended June
30, 2001. Its net share of the 142,684 (788 barrels per day) of gross oil
production for sale from the Ninotsminda field in the period amounted to 92,745
barrels. In the period 59,282 barrels of oil were removed from storage and sold.
For the six month period ended June 30, 2001 Ninotsminda Oil Company's net share
of the 232,186 barrels (1,283 barrels per day) of gross production was 140,140
barrels. The decline in production is due to limited workover investment
resulting in a natural reservoir rate of decline.
Ninotsminda Oil Company's entire share of production was sold into the Georgian
local and regional market. Because lower transportation costs are involved,
CanArgo believes that sales of Ninotsminda oil to customers in the Georgian
local and regional market generally yield relatively higher net sales prices to
Ninotsminda Oil Company than sales to other customers. Net sale prices for
Ninotsminda oil sold during the first half of 2002 averaged $15.85 per barrel as
compared with an average of $19.15 per barrel in the first half of 2001. Its net
share of the 68,435 mcf of gas delivered was 44,483 mcf at an average net sale
price of $1.22 per mcf of gas. For the six month period ended June 30, 2001,
Ninotsminda Oil Company's net share of the 692,700 mcf of gas delivered was
450,250 mcf at an average net sales price of $1.15 per mcf of gas. Gas
deliveries for the six months ended June 30, 2002 declined significantly due to
lower oil and gas production and the temporary shutdown by AES of its thermal
power generating station following an accident at the facility. Although AES has
now re-opened, its demand for gas is too great for CanArgo to meet from current
production.
Refining and marketing revenues for the six month period ended June 30, 2002
relate solely to CanArgo Standard Oil Products petrol stations. With regard to
the refinery owned by Georgian American Oil Refinery , currently only naptha,
diesel and mazut can currently be produced and of these products, an excise tax
on naptha sales remains in place. As a result of these taxes and the local
market for naptha in the Republic of Georgia, CanArgo deemed production of
naptha as commercially uneconomic and suspended refining activity in the fourth
quarter of 2001. In 2002 CanArgo entered into a short-term lease of the refinery
to a third party for nominal revenue. During the lease period, all operating
costs of the refinery were borne by the lessee. This lease expired in May 2002
and a new lease has not been identified. CanArgo continues to monitor demand for
product produced by the refinery and is seeking changes to the legislation in
support of indigenous refining activities, although no assurance can be given
that such changes can be made. The refinery is now in a care and maintenance
condition and $125,000 has been accrued with respect to closing costs including
severance.
Operating loss for the six month period ended June 30, 2002 was $1,144,000
compared with an operating loss of $2,100,000 for the corresponding period in
2001. The decrease in operating loss is attributable primarily to marketing
activity and profit generated from rental of CanArgo equipment. No new equipment
rental contracts have been signed and accordingly this revenue is anticipated to
drop sharply in the second half of 2002.
Field operating expenses decreased to $879,000 for the six month period ended
June 30, 2002 as compared to $1,113,000 for the six month period ended June 30,
2001. The decrease is primarily a result of decreased activity at the
Ninotsminda field offset partially by costs relating to sales of oil from
storage in the first half of the year.
Purchases of crude oil and products decreased to $2,572,000 for the six month
period ended June 30, 2002 as compared to $2,629,000 for the six month period
ended June 30, 2001. The decrease relates to the suspension of refining activity
in the fourth quarter of 2001 partially offset by increased operating activity
by CanArgo Standard Oil Products.
18
Refinery operating expenses were nil for the six month period ended June 30,
2002 as compared to $197,000 for the six month period ended June 30, 2001
resulting from refining activity being suspended.
Direct project costs increased to $982,000 for the six month period ended June
30, 2002, from $571,000 for the six month period ended June 30, 2001, reflecting
additional cost associated with the rental by others of CanArgo equipment.
General and administrative costs increased to $2,485,000 for the six month
period ended June 30, 2002, from $2,048,000 for the six month period ended June
30, 2001 due to an allowance for doubtful accounts of $275,000 from previous gas
sales, an accrual for $125,000 with respect to closure costs including severance
at the refinery and more corporate activity.
The decrease in depreciation, depletion and amortization expense to $1,343,000
for the six month period ended June 30, 2002, from $2,102,000 for the six month
period ended June 30, 2001 is attributable principally to lower production from
the Ninotsminda oil field.
CanArgo recorded net other income of $37,000 for the six months ended June 30,
2002, as compared to other income of $549,000 during the six months ended June
30, 2001 as a result of lower cash balances in 2002 and interest expense on its
credit facility in Georgia.
Equity income from investments increased to $91,000 for the six month period
ended June 30, 2002 from $29,000 for the six month period ended June 30, 2001 as
a result of equity income from production and sales of crude oil by Boryslaw Oil
Company.
The net loss of $1,204,000 or $0.01 per share for the six month period ended
June 30, 2002 compares to a net loss of $1,530,000, or $0.02 per share for the
six month period ended June 30, 2001. The weighted average number of common
shares outstanding was substantially higher during the six month period ended
June 30, 2002 than during the six month period ended June 30, 2001, due in large
part to private placements in July 2001, February and May 2002.
Three Month Period Ended June 30, 2002 Compared to Three Month Period Ended June
30, 2001
CanArgo recorded operating revenue of $2,871,000 during the three month period
ended June 30, 2002 compared with $2,964,000 for the three month period ended
June 30, 2001. The decrease is due to declines in oil and gas and refining and
marketing revenues.
Ninotsminda Oil Company generated $793,000 of revenue in the three month period
ended June 30, 2002. Its net share of the 69,310 barrels (753 barrels per day)
of gross oil production for sale from the Ninotsminda field in the period
amounted to 45,052 barrels. An additional 7,200 barrels of oil were removed from
storage and sold in the period. For the three month period ended June 30, 2001,
Ninotsminda Oil Company's net share of the 101,230 barrels (1,112 barrels per
day) of gross production was 60,380 barrels. The decline in production is due to
limited workover investment resulting in a natural reservoir rate of decline.
Ninotsminda Oil Company's entire share of production was sold into the Georgian
local and regional market. Because lower transportation costs are involved,
CanArgo believes that sales of Ninotsminda oil to customers in the Georgian
local and regional market generally yield relatively higher net sales prices to
Ninotsminda Oil Company than sales to other customers. Net sale prices for
Ninotsminda oil sold during the second quarter of 2002 averaged $15.18 per
barrel as compared with an average of $19.49 per barrel in the second quarter of
2001. Its net share of the 41,000 mcf of gas delivered was 26,000 mcf at an
average net sale price of $1.25 per mcf of gas. For the three month period ended
June 30, 2001, Ninotsminda Oil Company's net share of the 238,000 mcf of gas
delivered was 154,700 mcf at an average net sales price of $1.18 per mcf of gas.
19
Refining and marketing revenues for the three month period ended June 30, 2002
relate solely to CanArgo Standard Oil Products petrol stations. With regard to
the refinery owned by Georgian American Oil Refinery , currently only naptha,
diesel and mazut can currently be produced and of these products, an excise tax
on naptha sales remains in place. As a result of these taxes and the local
market for naptha in the Republic of Georgia, CanArgo deemed production of
naptha as commercially uneconomic and suspended refining activity in the fourth
quarter of 2001. In 2002 CanArgo entered into a short-term lease of the refinery
to a third party for nominal revenue which expired in May 2002. During the lease
period, all operating costs of the refinery were borne by the lessee. This lease
expired in May 2002 and a new lease has not been identified. CanArgo continues
to monitor demand for product produced by the refinery and is seeking changes to
the legislation in support of indigenous refining activities, although no
assurance can be given that such changes can be made. The refinery is now in a
care and maintenance condition and $125,000 has been accrued with respect to
closing costs including severance.
CanArgo had $155,000 revenue from equipment rentals in the second quarter of
2002 compared to nil revenue from equipment rentals for the three month period
ended June 30, 2001.
The operating loss for the three month period ended June 30, 2002 amounted to
$1,494,000 compared with an operating loss of $1,454,000 for the corresponding
period in 2001. The increase in operating loss is attributable primarily to
increased general and administrative cost and lower refining and marketing
income, offset partially by a reduced depreciation, depletion and amortization
charge in the period.
Field operating expenses decreased to $283,000 for the three month period ended
June 30, 2002 as compared to $611,000 for the three month period ended June 30,
2001. The decrease is primarily a result of decreased activity at the
Ninotsminda field.
Purchases of crude oil and products of $1,530,000 for the three month period
ended June 30, 2002 as compared to $1,472,000 for the three month period ended
June 30, 2001 relate to increased operating activities of CanArgo Standard Oil
Products.
Refinery operating expenses were nil for the three month period ended June 30,
2002 as compared to $77,000 for the three month period ended June 30, 2001
resulting from refining activity being suspended.
Direct project costs increased to $352,000 for the three month period ended June
30, 2002, from $322,000 for the three month period ended June 30, 2001
reflecting additional cost associated with the rental by others of CanArgo
equipment.
General and administrative costs increased to $1,655,000 for the three month
period ended June 30, 2002, from $1,020,000 for the three month period ended
June 30, 2001. The increase is primarily attributable to an allowance for a
doubtful accounts of $275,000 from previous gas sales, an accrual for $125,000
with respect to closure costs including severance at the refinery and the under
accrual of corporate costs in the first quarter recorded subsequently in the
second quarter.
The decrease in depreciation, depletion and amortization expense to $544,000
from $917,000 for the three month period ended June 30, 2002 is attributable
principally to lower production from the Ninotsminda field.
The equity income from investments increased to $99,000 for the three month
period ended June 30, 2002, from $66,000 for the three month period ended June
30, 2001 as a result of equity income from production and sales of crude oil by
Boryslaw Oil Company.
CanArgo recorded net other income of $181,000 for the three months ended June
30, 2002, as compared to other income of $199,000 during the three months ended
June 30, 2001. The principal reason for the decrease is lower interest income on
cash balances partially offset by higher equity income from investments and
foreign exchange gains in the second quarter.
The net loss of $1,291,000 or $0.01 per share for the three month period ended
June 30, 2002 compares to a net loss of $1,203,000, or $0.02 per share for the
three month period ended June 30, 2001. The weighted average number of common
shares outstanding was substantially higher during the three month period ended
June 30, 2002 than during
20
the three month period ended June 30, 2001, due in large part to private
placements in July 2001, February 2002 and May 2002.
FORWARD LOOKING STATEMENTS
The forward looking statements contained in this Item 2 and elsewhere in this
Form 10-Q are subject to various risks, uncertainties and other factors that
could cause actual results to differ materially from the results anticipated in
such forward looking statements. Included among the important risks,
uncertainties and other factors are those hereinafter discussed.
Operating entities in various foreign jurisdictions must be registered by
governmental agencies, and production licenses for development of oil and gas
fields in various foreign jurisdictions must be granted by governmental
agencies. These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and matters. In addition,
the policies and practices of governmental agencies may be affected or altered
by political, economic and other events occurring either within their own
countries or in a broader international context.
CanArgo does not have a majority of the equity in the entity that is the
licensed developer of some projects, such as the Bugruvativske and Stynawske
field projects, that CanArgo may pursue in Eastern Europe, even though we may be
the designated operator of the oil or gas field. In these circumstances, the
concurrence of co-venturers may be required for various actions. Other parties
influencing the timing of events may have priorities that differ from ours, even
if they generally share our objectives. As a result of all of the foregoing,
among other matters, any forward-looking statements regarding the occurrence and
timing of future events may well anticipate results that will not be realized.
Demands by or expectations of governments, co-venturers, customers and others
may affect CanArgo's strategy regarding the various projects. Failure to meet
such demands or expectations could adversely affect CanArgo's participation in
such projects or our ability to obtain or maintain necessary licenses and other
approvals.
CanArgo's ability to finance all of its present oil and gas projects and other
ventures according to present plans is dependent upon obtaining additional
funding. An inability to obtain financing could require CanArgo to scale back or
abandon part or all of CanArgo's project development, capital expenditure,
production and other plans. The availability of equity or debt financing to
CanArgo or to the entities that are developing projects in which CanArgo has
interests is affected by many factors, including:
o world economic conditions;
o international relations;
o the stability and policies of various governments;
o fluctuations in the price of oil and gas, the outlook for the oil and
gas industry and competition for funds; and
o an evaluation of CanArgo and specific projects in which CanArgo has an
interest.
Rising interest rates might affect the feasibility of debt financing that is
offered. Potential investors and lenders will be influenced by their evaluations
of us and our projects and comparisons with alternative investment
opportunities.
The development of oil and gas properties is subject to substantial risks.
Expectations regarding production, even if estimated by independent petroleum
engineers, may prove to be unrealized. There are many uncertainties inherent in
estimating production quantities and in projecting future production rates and
the timing and amount of future development expenditures. Estimates of
properties in full production are more reliable than production estimates for
new discoveries and other properties that are not fully productive. Accordingly,
estimates related to CanArgo's properties are subject to change as additional
information becomes available.
Most of CanArgo's interests in oil and gas properties and ventures are located
in Eastern European countries. Operations in those countries are subject to
certain additional risks including the following:
21
o enforceability of contracts;
o currency convertibility and transferability;
o unexpected changes in tax rates;
o sudden or unexpected changes in demand for crude oil and or natural
gas;
o availability of trained personnel; and
o availability of equipment and services and other factors that could
significantly change the economics of production.
Production estimates are subject to revision as prices and costs change.
Production, even if present, may not be recoverable in the amount and at the
rate anticipated and may not be recoverable in commercial quantities or on an
economically feasible basis. World and local prices for oil and gas can
fluctuate significantly, and a reduction in the revenue realizable from the sale
of production can affect the economic feasibility of an oil and gas project.
World and local political, economic and other conditions could affect CanArgo's
ability to proceed with or to effectively operate projects in various foreign
countries.
Demands by or expectations of governments, co-venturers, customers and others
may affect CanArgo's strategy regarding the various projects. Failure to meet
such demands or expectations could adversely affect CanArgo's participation in
such projects or its ability to obtain or maintain necessary licenses and other
approvals.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CanArgo's principal exposure to market risk is due to changes in oil and gas
prices and currency fluctuations. As indicated elsewhere in this Report, as a
producer of oil and gas CanArgo is exposed to changes in oil and gas prices as
well as changes in supply and demand which could affect its revenues. CanArgo
does not engage in any commodity hedging activities. Due to the ready market for
its production in the Republic of Georgia, CanArgo does not believe that any
current exposures from this risk will materially affect CanArgo's financial
position at this time, but there can be no assurance that changes in such market
will not affect CanArgo adversely in the future.
Also as indicated elsewhere in this Report, because all of CanArgo's operations
are being conducted in Eastern Europe, CanArgo is potentially exposed to the
market risk of fluctuations in the relative values of the currencies in areas in
which it operates. At present CanArgo does not engage in any currency hedging
operations since, to the extent it receives payments for its production,
refining and marketing activities in local currencies, it is utilizing such
currencies to pay for its local operations. In addition, it currently has
contracts to sell its production from the Ninotsminda field in the Republic of
Georgia which provide for payment in dollars.
While CanArgo Standard Oil Products marketing revenue is denominated in Lari,
the local Georgian currency, and is used to pay Lari denominated operating
costs, its long term debt is denominated in dollars. As a result, changes in the
exchange rate could have a material adverse effect on its ability to pay off
non-Lari denominated indebtedness such as its existing credit facility. The
sensitivity to changes in exchange rates for CanArgo Standard Oil Products was
determined using current market pricing models. We estimate that a 10%
appreciation or devaluation in the foreign exchange rate of the Lari against the
dollar in 2002 would not have had a significant impact on operations.
CanArgo had no material interest in investments subject to market risk during
the period covered by this report.
22
PART II - OTHER INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On February 12, 2002, CanArgo completed an offering of 5,210,000
shares of common stock at Norwegian Kroner 2.95 per share
(approximately US$0.33 per share) to a financial institution and
qualified purchasers for gross proceeds of approximately
$1,762,000 in transactions intended to qualify for an exemption
from registration under the Securities Act of 1933 afforded by
Regulation S promulgated thereunder. ABG Sundal Collier ASA acted
as placement agent for this transaction. The placement agent
received a commission of 5.75% of the gross proceeds of the
placement. Proceeds from the offering will be used for working
capital and future capital expenditures in Georgia following
termination of the AES Participation Agreement
(d) On May 28, 2002, CanArgo completed an offering of 137,760 common
shares at NOK 1.68 per share (approximately US$0.21 per share) to
David Robson, CanArgo's Chief Executive Officer, for gross
proceeds of approximately $29,000. The shares have not been
registered under the Securities Act of 1933 and are "restricted"
as that term is defined in Rule 144 under the Securities Act. The
shares may not be offered for sale, sold or otherwise transferred
except pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from registration
under the Securities Act, the availability of which is to be
established to the satisfaction of CanArgo.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 29, 2002, the Annual Meeting of Stockholders was held at the
Theatersalen, Hotel Continental, Oslo, Norway to elect four directors to serve
until the next Annual Meeting of Stockholders or until their successors are duly
elected and qualified. The matter was voted upon at the meeting, and the number
of votes cast for, against or withheld, where applicable, is set forth below.
PROPOSAL VOTES FOR VOTES AGAINST VOTES WITHHELD
- -------- --------- ------------- --------------
To elect Messrs. Roger Brittain, David
Robson, Russell Hammond and Nils Trulsvik to
the Board of Directors 82,627,217 - 42,556
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Management Contracts, Compensation Plans and Arrangements
are identified by an asterisk (*) Documents filed herewith
are identified by a cross (+).
1(1) Escrow Agreement with Signature Stock Transfer, Inc.
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on September 9, 1999).
1(2) Selling Agent Agreement with each of Credifinance Securities
Limited, David Williamson Associates Limited, and Orkla
Finans (Fondsmegling) ASA (Incorporated herein by reference
from Form S-1 Registration Statement, File No. 333-72295
filed on September 9, 1999).
1(3) Escrow Agreement with Orkla Finans (Fondsmegling) ASA
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on September 9, 1999).
1(4) Selling Agent Agreement with National Securities Corporation
(Incorporated herein by
23
reference from Post-Effective Amendment No. 1 to Form S-1
Registration Statement, File No. 333-72295 filed on July 29,
1999).
1(5) Escrow Agreement with Continental Stock Transfer & Trust
Company (Incorporated herein by reference from
Post-Effective Amendment No. 1 to Form S-1 Registration
Statement, File No. 333-72295 filed on July 29, 1999).
2(1) Agreement Relating to the Sale and Purchase of All the
Issued Share Capital of Gastron International Limited dated
August 10, 1995 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John
Richard Tate as Warrantor (Incorporated herein by reference
from October 19, 1995 Form 8-K).
2(2) Supplemental Agreement Relating to the Sale and Purchase of
All the Issued Share Capital of Gastron International
Limited dated November 3, 1995 by and among Ribalta
Holdings, Inc. as Vendor and Fountain Oil Incorporated as
Purchaser, and John Richard Tate as Warrantor (Incorporated
herein by reference from October 19, 1995 Form 8-K).
2(3) Supplemental Deed Relating to the Sale and Purchase of All
the Issued Share Capital of Gastron International Limited
dated May 29, 1996 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John
Richard Tate as Warrantor (Incorporated herein by reference
from September 30, 1997 Form 10-Q).
2(4) Memorandum of Agreement between Fielden Management Services
Pty, Ltd., A.C.N. 005 506 123 and Fountain Oil Incorporated
dated May 16, 1995 (Incorporated herein by reference from
December 31, 1997 Form 10-K/A).
2(5) Amended and Restated Combination Agreement between Fountain
Oil Incorporated and CanArgo Energy Inc. dated as of
February 2, 1998 (Incorporated herein by reference from Form
S-3 Registration Statement, File No. 333-48287 filed on
September 9, 1998).
2(6) Voting, Support and Exchange Trust Agreement (Incorporated
herein by reference as Annex G from Form S-3 Registration
Statement, File No. 333-48287 filed on September 9, 1998).
2(7) Offer Circular relating to a proposed purchase all of the
outstanding common shares of Lateral Vector Resources, Inc.
dated March 20, 2001 (Incorporated herein by reference from
Form 14D-1F dated March 21, 2001).
2(8) Notice of Extension and Variation amending Registrant's
offer to purchase all of the outstanding common shares of
Lateral Vector Resources, Inc. dated April 9, 2001
(Incorporated herein by reference from Amendment No. 1 to
Form 14D-1F dated April 11, 2001).
3(1) Registrant's Certificate of Incorporation and amendments
thereto (Incorporated herein by reference from July 15, 1998
Form 8-K).
3(2) Registrant's Bylaws (Incorporated herein by reference from
Post-Effective Amendment No. 1 to Form S-1 Registration
Statement, File No. 333-72295 filed on July 29, 1999).
4(1) Registration Rights Agreement between Registrant and JKX
Nederland B.V. dated September 28, 2000, relating to
purchase of 21.2% interest in Ninotsminda Oil Company
(Incorporated herein by reference from July 20, 2000 Form
8-K).
*10(1) Form of Option Agreement for options granted to certain
persons, including Directors (Incorporated herein by
reference from August 31, 1994 Form 10-KSB, filed by
Electromagnetic Oil Recovery, Inc., the Company's
predecessor).
24
*10(2) Amended and Restated 1995 Long-Term Incentive Plan
(Incorporated herein by reference from Post-Effective
Amendment No. 1 to Form S-1 Registration Statement, File No.
333-72295 filed on July 29, 1999).
*10(3) Amended and Restated CanArgo Energy Inc. Stock Option Plan
(Incorporated herein by reference from September 30, 1998
Form 10-Q).
10(4) Agreement between Georgian American Oil Refinery Company
and CanArgo Petroleum Products Ltd. dated September 26, 1998
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
10(5) Terrenex Acquisition Corporation Option regarding CanArgo
(Nazvrevi) Limited (Incorporated herein by reference from
Form S-1 Registration Statement, File No. 333-72295 filed on
February 12, 1999).
10(6) Production Sharing Contract between (1) Georgia and (2)
Georgian Oil and JKX Navtobi Ltd. dated February 12, 1996
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on September 7, 1999).
10(7) Agreement on Financial Advisory Services between CanArgo
Energy Corporation, Orkla Finans (Fondsmegling) A.S and
Sundal Collier & Co. ASA dated December 8, 1999
(Incorporated herein by reference from December 28, 1999
Form 8-K).
10(8) Form of Subscription Agreement (Incorporated herein by
reference from December 28, 1999 Form 8-K).
10(9) Agreement between CanArgo Energy Corporation and JKX
Nederland BV dated January 19, 2000 (Incorporated herein by
reference from December 31, 1999 Form 10-K).
10(10) Agreement between Ninotsminda Oil Company and AES
Gardabani dated March 10, 2000 (Incorporated herein by
reference from December 31, 1999 Form 10-K).
10(11) Term Sheet dated September 27, 2000 relating to sale of
15,660,916 shares of Registrant's common stock (Incorporated
herein by reference from July 20, 2000 Form 8-K).
10(12) Form of Subscription Agreement relating to sale of
15,660,916 shares of the Registrant's common stock
(Incorporated herein by reference from July 20, 2000 Form
8-K).
10(13) Subscription Agreement between Registrant and JKX
Nederland B.V. dated September 15, 2000 relating to purchase
of 21.2% interest in Ninotsminda Oil Company (Incorporated
herein by reference from July 20, 2000 Form 8-K).
*10(14) Employment Agreement between CanArgo Energy Corporation
and Dr. David Robson dated June 29, 2000 (Incorporated
herein by reference from September 30, 2000 Form 10-Q).
10(15) Tenancy Agreement between CanArgo Energy Corporation and
Grosvenor West End Properties dated September 8, 2000
(Incorporated herein by reference from September 30, 2000
Form 10-Q).
10(16) Agreement between CanArgo Energy Corporation and Roger
Brittain dated August 18, 2000 (Incorporated herein by
reference from December 31, 2000 Form 10-K).
*10(17) Employment Agreements between CanArgo Energy Corporation
and Murray Chancellor
25
dated September 22, 2000 (Incorporated herein by reference
from December 31, 2000 Form 10-K).
*10(18) Employment Agreements between CanArgo Energy Corporation
and Anthony Potter dated October 1, 2000 (Incorporated
herein by reference from December 31, 2000 Form 10-K).
10(19) Production Sharing Contract between (1) Georgia and (2)
Georgian Oil and CanArgo Norio Limited dated December 12,
2000 (Incorporated herein by reference from December 31,
2000 Form 10-K) (Incorporated herein by reference from
December 31, 2000 Form 10-K).
10(20) Agreement between CanArgo Energy Corporation and Georgian
British Oil Services Company dated November 10, 2000
relating to the purchase of 9.35% interest in Georgian
American Oil Refinery (Incorporated herein by reference from
December 31, 2000 Form 10-K).
10(21) Share Exchange Agreement between CanArgo Energy
Corporation and Argonaut Oil and Gas Limited dated November
10, 2000, related to the purchase of 28.7% interest in
Georgian American Oil Refinery (Incorporated herein by
reference from December 31, 2000 Form 10-K).
*10(22) Employment Agreements between CanArgo Energy Corporation
and Vincent McDonnell dated December 1, 2000. (Incorporated
herein by reference from December 31, 2001 Form 10-K).
10(23) Agreement Number 1 dated March 20, 1998 on Joint
Investment Production Activity for further development and
further exploration of Bugruvativske Field (Incorporated
herein by reference from June 30, 2001 Form 10-Q).
10(24) Crude Oil Sales Agreement dated August 13, 2002.
21 List of Subsidiaries (Incorporated herein by reference from
June 30, 2001 Form 10-Q)
99(1) Certification of Chief Executive Officer pursuant to
18.U.S.C. Section 1350, as adopted pursuant to section 906
of the Sarbanes-Oxley Act of 2002.
99(2) Certification of Chief Financial Officer pursuant to
18.U.S.C. Section 1350, as adopted pursuant to section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8 K:
The following current reports on form 8-K were filed during the quarter ended
June 30, 2002.
On May 29, 2002 CanArgo made a corporate presentation at its Annual General
Meeting in Oslo, Norway.
26
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CANARGO ENERGY CORPORATION
Date: August 14, 2002 By: /s/ Anthony J. Potter
-------------------------------------
Anthony J. Potter
Chief Financial Officer
27
EXHIBIT INDEX
FILED
HEREWITH EXHIBIT
Management Contracts, Compensation Plans and Arrangements are
identified by an asterisk (*) Documents filed herewith are
identified by a cross (+).
1(1) Escrow Agreement with Signature Stock Transfer, Inc.
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on September 9, 1999).
1(2) Selling Agent Agreement with each of Credifinance Securities
Limited, David Williamson Associates Limited, and Orkla Finans
(Fondsmegling) ASA (Incorporated herein by reference from Form
S-1 Registration Statement, File No. 333-72295 filed on September
9, 1999).
1(3) Escrow Agreement with Orkla Finans (Fondsmegling) ASA
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on September 9, 1999).
1(4) Selling Agent Agreement with National Securities Corporation
(Incorporated herein by reference from Post-Effective Amendment
No. 1 to Form S-1 Registration Statement, File No. 333-72295
filed on July 29, 1999).
1(5) Escrow Agreement with Continental Stock Transfer & Trust Company
(Incorporated herein by reference from Post-Effective Amendment
No. 1 to Form S-1 Registration Statement, File No. 333-72295
filed on July 29, 1999).
2(1) Agreement Relating to the Sale and Purchase of All the Issued
Share Capital of Gastron International Limited dated August 10,
1995 by and among Ribalta Holdings, Inc. as Vendor and Fountain
Oil Incorporated as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from October 19, 1995 Form
8-K).
2(2) Supplemental Agreement Relating to the Sale and Purchase
of All the Issued Share Capital of Gastron International Limited
dated November 3, 1995 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John
Richard Tate as Warrantor (Incorporated herein by reference from
October 19, 1995 Form 8-K).
2(3) Supplemental Deed Relating to the Sale and Purchase of All the
Issued Share Capital of Gastron International Limited dated May
29, 1996 by and among Ribalta Holdings, Inc. as Vendor and
Fountain Oil Incorporated as Purchaser, and John Richard Tate as
Warrantor (Incorporated herein by reference from September 30,
1997 Form 10-Q).
2(4) Memorandum of Agreement between Fielden Management Services Pty,
Ltd., A.C.N. 005 506 123 and Fountain Oil Incorporated dated May
16, 1995 (Incorporated herein by reference from December 31, 1997
Form 10-K/A).
2(5) Amended and Restated Combination Agreement between Fountain Oil
Incorporated and CanArgo Energy Inc. dated as of February 2, 1998
(Incorporated herein by reference from Form S-3 Registration
Statement, File No. 333-48287 filed on September 9, 1998).
2(6) Voting, Support and Exchange Trust Agreement (Incorporated
herein by reference as Annex G from Form S-3 Registration
Statement, File No. 333-48287 filed on September 9, 1998).
2(7) Offer Circular relating to a proposed purchase all of the
outstanding common shares of Lateral Vector Resources, Inc. dated
March 20, 2001 (Incorporated herein by reference from Form 14D-1F
dated March 21, 2001).
2(8) Notice of Extension and Variation amending Registrant's offer to
purchase all of the outstanding common shares of Lateral Vector
Resources, Inc. dated April 9, 2001 (Incorporated herein by
reference from Amendment No. 1 to Form 14D-1F dated April 11,
2001).
3(1) Registrant's Certificate of Incorporation and amendments
thereto (Incorporated herein by reference from July 15, 1998 Form
8-K).
3(2) Registrant's Bylaws (Incorporated herein by reference from
Post-Effective Amendment No. 1 to Form S-1 Registration
Statement, File No. 333-72295 filed on July 29, 1999).
4(1) Registration Rights Agreement between Registrant and JKX
Nederland B.V. dated September 28, 2000, relating to purchase of
21.2% interest in Ninotsminda Oil Company (Incorporated herein
by reference from July 20, 2000 Form 8-K).
*10(1) Form of Option Agreement for options granted to certain
persons, including Directors (Incorporated herein by reference
from August 31, 1994 Form 10-KSB, filed by Electromagnetic Oil
Recovery, Inc., the Company's predecessor).
*10(2) Amended and Restated 1995 Long-Term Incentive Plan
(Incorporated herein by reference from Post-Effective Amendment
No. 1 to Form S-1 Registration Statement, File No. 333-72295
filed on July 29, 1999).
*10(3) Amended and Restated CanArgo Energy Inc. Stock Option Plan
(Incorporated herein by reference from September 30, 1998 Form
10-Q).
10(4) Agreement between Georgian American Oil Refinery Company and
CanArgo Petroleum Products Ltd. dated September 26, 1998
(Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
10(5) Terrenex Acquisition Corporation Option regarding CanArgo
(Nazvrevi) Limited (Incorporated herein by reference from Form
S-1 Registration Statement, File No. 333-72295 filed on February
12, 1999).
10(6) Production Sharing Contract between (1) Georgia and (2) Georgian
Oil and JKX Navtobi Ltd. dated February 12, 1996 (Incorporated
herein by reference from Form S-1 Registration Statement, File
No. 333-72295 filed on September 7, 1999).
10(7) Agreement on Financial Advisory Services between CanArgo Energy
Corporation, Orkla Finans (Fondsmegling) A.S and Sundal Collier &
Co. ASA dated December 8, 1999 (Incorporated herein by reference
from December 28, 1999 Form 8-K).
10(8) Form of Subscription Agreement (Incorporated herein by
reference from December 28, 1999 Form 8-K).
10(9) Agreement between CanArgo Energy Corporation and JKX
Nederland BV dated January 19, 2000 (Incorporated herein by
reference from December 31, 1999 Form 10-K).
10(10) Agreement between Ninotsminda Oil Company and AES Gardabani
dated March 10, 2000 (Incorporated herein by reference from
December 31, 1999 Form 10-K).
10(11) Term Sheet dated September 27, 2000 relating to sale of
15,660,916 shares of Registrant's common stock (Incorporated
herein by reference from July 20, 2000 Form 8-K).
10(12) Form of Subscription Agreement relating to sale of
15,660,916 shares of the Registrant's common stock (Incorporated
herein by reference from July 20, 2000 Form 8-K).
10(13) Subscription Agreement between Registrant and JKX Nederland
B.V. dated September 15, 2000 relating to purchase of 21.2%
interest in Ninotsminda Oil Company (Incorporated herein by
reference from July 20, 2000 Form 8-K).
*10(14)Employment Agreement between CanArgo Energy Corporation and
Dr. David Robson dated June 29, 2000 (Incorporated herein by
reference from September 30, 2000 Form 10-Q).
10(15) Tenancy Agreement between CanArgo Energy Corporation and
Grosvenor West End Properties dated September 8, 2000
(Incorporated herein by reference from September 30, 2000 Form
10-Q).
10(16) Agreement between CanArgo Energy Corporation and Roger
Brittain dated August 18, 2000 (Incorporated herein by reference
from December 31, 2000 Form 10-K).
*10(17)Employment Agreements between CanArgo Energy Corporation and
Murray Chancellor dated September 22, 2000 (Incorporated herein
by reference from December 31, 2000 Form 10-K).
*10(18)Employment Agreements between CanArgo Energy Corporation and
Anthony Potter dated October 1, 2000 (Incorporated herein by
reference from December 31, 2000 Form 10-K).
10(19) Production Sharing Contract between (1) Georgia and (2)
Georgian Oil and CanArgo Norio Limited dated December 12, 2000
(Incorporated herein by reference from December 31, 2000 Form
10-K) (Incorporated herein by reference from December 31, 2000
Form 10-K).
10(20) Agreement between CanArgo Energy Corporation and Georgian
British Oil Services Company dated November 10, 2000 relating to
the purchase of 9.35% interest in Georgian American Oil Refinery
(Incorporated herein by reference from December 31, 2000 Form
10-K).
10(21) Share Exchange Agreement between CanArgo Energy
Corporation and Argonaut Oil and Gas Limited dated November 10,
2000, related to the purchase of 28.7% interest in Georgian
American Oil Refinery (Incorporated herein by reference from
December 31, 2000 Form 10-K).
*10(22)Employment Agreements between CanArgo Energy Corporation and
Vincent McDonnell dated December 1, 2000. (Incorporated herein by
reference from December 31, 2001 Form 10-K).
10(23) Agreement Number 1 dated March 20, 1998 on Joint
Investment Production Activity for further development and
further exploration of Bugruvativske Field (Incorporated herein
by reference from June 30, 2001 Form 10-Q).
+10(24) Crude Oil Sales Agreement dated August 13, 2002
21 List of Subsidiaries (Incorporated herein by reference from June
30, 2001 Form 10-Q)
+ 99(1) Certification of Chief Executive Officer pursuant to 18.U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
+ 99(2) Certification of Chief Financial Officer pursuant to 18.U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.