Nevada
|
98-0479924
|
(State
or other jurisdiction of incorporation)
|
(I.R.S.
Employer Identification
No.)
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Page
Number
|
||||
Financial
Statements for Argosy Energy International, LP as of March 31, 2006
and the period ended March 31, 2006 (Unaudited)
|
|
|
3
|
|
|
|
|
|
|
Statements
of Income
|
|
|
3
|
|
Balance
Sheets
|
|
|
4
|
|
Statements
of Cash Flows
|
|
|
5
|
|
Statements
of Partners’ Equity
|
|
|
6
|
|
Notes
to Financial Statements
|
|
|
7
|
|
|
|
|
|
|
Financial
Statements for Argosy Energy International, LP as of December 31,
2005 and 2004
|
|
|
21
|
|
|
|
|
|
|
Independent
Auditors’ Report
|
|
|
21
|
|
Statements
of Income
|
|
|
22
|
|
Balance
Sheets
|
|
|
23
|
|
Statements
of Cash Flows
|
|
|
24
|
|
Statements
of Partners’ Equity
|
|
|
25
|
|
Notes
to Financial Statements
|
|
|
26
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|
|
|
|
|
|
Supplemental
Oil and Gas Information (unaudited)
|
|
|
42
|
|
2006
|
2005
|
||||||
Oil
sales to Ecopetrol
|
$
|
3,575
|
1,521
|
||||
|
|||||||
Operating
cost (note 8)
|
367
|
364
|
|||||
Depreciation,
depletion and amortization
|
190
|
80
|
|||||
General
and administrative expenses
|
282
|
148
|
|||||
|
839
|
592
|
|||||
Operating
profit
|
2,736
|
929
|
|||||
|
|||||||
Other
income, net
|
79
|
116
|
|||||
Income
before income and remittance taxes
|
2,815
|
1,045
|
|||||
|
|||||||
Current
income tax (note 9)
|
1,017
|
370
|
|||||
Deferred
remittance tax
|
109
|
42
|
|||||
Total
income and remittance taxes
|
1,126
|
412
|
|||||
Net
income
|
$
|
1,689
|
633
|
March
31,
|
December
31,
|
||||||
Assets
|
2006
|
2005
|
|||||
|
|
|
|||||
Current
assets:
|
|
|
|||||
Cash
and cash equivalents (note 3)
|
$
|
2,670
|
7,124
|
||||
Accounts
receivable, net (note 4)
|
3,898
|
951
|
|||||
Accounts
receivable reimbursement Ecopetrol
|
1,186
|
1,186
|
|||||
Inventories:
|
|||||||
Crude
oil
|
211
|
218
|
|||||
Materials
and supplies
|
626
|
557
|
|||||
|
837
|
775
|
|||||
Total
current assets
|
8,591
|
10,036
|
|||||
|
|||||||
Other
long-term assets
|
25
|
16
|
|||||
Property,
plant and equipment (note 5):
|
|||||||
Unproved
properties
|
3,831
|
3,622
|
|||||
Proved
properties
|
5,305
|
5,401
|
|||||
|
9,136
|
9,023
|
|||||
Total
assets
|
$
|
17,752
|
19,075
|
||||
|
|||||||
Liabilities
and Partners’ Equity
|
|||||||
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
4,852
|
4,979
|
|||||
Tax
payable
|
1,721
|
1,326
|
|||||
Employee
benefits
|
97
|
103
|
|||||
Accrued
liabilities
|
547
|
522
|
|||||
Total
current liabilities
|
7,217
|
6,930
|
|||||
|
|||||||
Long-term
accounts payable (note 10)
|
686
|
686
|
|||||
Deferred
income tax
|
473
|
475
|
|||||
Deferred
remittance tax
|
1,210
|
1,104
|
|||||
Pension
plan
|
—
|
—
|
|||||
Total
liabilities
|
9,586
|
9,195
|
|||||
Partners’
equity (note 7)
|
8,166
|
9,880
|
|||||
Total
liabilities and partners’ equity
|
$
|
17,752
|
19,075
|
2006
|
2005
|
||||||
Cash
flows from operating activities:
|
|
|
|||||
Net
income
|
$
|
1,689
|
633
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
Depreciation,
depletion and amortization
|
190
|
80
|
|||||
Deferred
remittance tax
|
109
|
42
|
|||||
Changes
in assets and liabilities:
|
|||||||
Accounts
receivable
|
(3,147
|
)
|
(839
|
)
|
|||
Inventories
|
(62
|
)
|
58
|
||||
Accounts
payable
|
(127
|
)
|
202
|
||||
Tax
payable
|
395
|
99
|
|||||
Employee
benefits
|
(6
|
)
|
48
|
||||
Accrued
Liabilities
|
25
|
491
|
|||||
Deferred
income tax
|
(2
|
)
|
1
|
||||
Deferred
remittance tax
|
(3
|
)
|
4
|
||||
Pensions
|
—
|
(5
|
)
|
||||
Net
cash (used in) provided by operating activities
|
(939
|
)
|
814
|
||||
|
|||||||
Cash
flows from investing activities:
|
|||||||
Increase
in long term investments
|
(9
|
)
|
(1
|
)
|
|||
Payments
from Petroleum Equipment International - Talora
|
200
|
—
|
|||||
Additions
to property, plant and equipment
|
(303
|
)
|
(767
|
)
|
|||
Net
cash used in investing activities
|
(112
|
)
|
(768
|
)
|
|||
|
|||||||
Cash
flows from financial activities:
|
|||||||
Bank
overdrafts
|
—
|
106
|
|||||
Distributions
to partners
|
(3,250
|
)
|
—
|
||||
Aviva
redemption shares
|
(153
|
)
|
—
|
||||
Net
cash (used in) provided by financial activities
|
(3,403
|
)
|
106
|
||||
|
|||||||
(Decrease)
increase in cash and cash equivalents
|
(4,454
|
)
|
152
|
||||
Cash
and cash equivalents at beginning of year
|
7,124
|
6,954
|
|||||
Cash
and cash equivalents at end of the period
|
$
|
2,670
|
7,106
|
Limited
|
General
|
Total
|
||||||||
partners’
|
partners’
|
partners’
|
||||||||
capital
|
capital
|
equity
|
||||||||
Balance
as of December 31, 2005
|
9,810
|
70
|
9,880
|
|||||||
Redemption
of partnership payments interest - Aviva Overseas Inc. (note
10)
|
(152
|
)
|
(1
|
)
|
(153
|
)
|
||||
Distributions
to partners
|
(3,227
|
)
|
(23
|
)
|
(3,250
|
)
|
||||
Net
income
|
1,677
|
12
|
1,689
|
|||||||
Balance
as of March 31, 2006
|
$
|
8,108
|
58
|
8,166
|
(1)
|
|
Business
Activities
|
|
|
|
|
|
Argosy
Energy International, LP is a Utah (USA) Limited Partnership, which
established a Colombian Branch in 1983.
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Argosy
Energy International, LP is engaged in the business of exploring
for,
developing and producing oil and gas. The principal properties and
operations are located in Colombia, which are carried out through
its
Colombian Branch in the Putumayo, Cauca, Tolima and Cundinamarca
Provinces. The oil production is sold to Empresa Colombiana de Petróleos,
the Colombian National Oil Company, (“Ecopetrol”).
|
|
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There
are risks involved in conducting oil and gas activities in remote,
rugged
and primitive regions of Colombia. The guerrillas have operated within
Colombia for many years and expose the Company’s operations to potentially
detrimental activities. The guerrillas are present in the Putumayo
and Río
Magdalena areas where the Company’s properties are located. Since 1998,
the Company has only experienced minor attacks on pipelines and
equipment.
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Operations
|
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As
of March 31, 2006, Argosy was participating in the following
Association Contracts signed with Ecopetrol and Exploration and
Exploitation Contracts signed with the Hydrocarbons National Agency
-
ANH.
|
Contract
|
|
Participation
|
|
Operator
|
|
Phase
|
||||||
Santana
|
|
|
35
|
%
|
|
ARGOSY
|
|
Exploitation
|
||||
Guayuyaco
|
|
|
70
|
%
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|
ARGOSY
|
|
Exploitation
|
||||
Aporte
Putumayo
|
|
|
100
|
%
|
|
ARGOSY
|
|
Abandonment
|
||||
Río
Magdalena
|
|
|
70
|
%
|
|
ARGOSY
|
|
Exploration
|
||||
Talora
|
|
|
20
|
%
|
|
ARGOSY
|
|
Exploration
|
||||
Chaza
|
|
|
50
|
%
|
|
ARGOSY
|
|
Exploration
|
|
|
The
first four contracts have been signed with ECOPETROL and the last
two with
ANH.
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|
|
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|
|
An
association contracts are those where the Government participate
as
partner of the field through the national oil company —
ECOPETROL.
|
|
|
|
|
|
Exploration
and production contracts (E&P) are those signed with the ANH —
“Agencia Nacional de Hidrocarburos” (National Agency for Hydrocarbons) in
which the Government only receive royalties and taxes for the rights
of
exploration and production but there is not a participation from
the
national oil company - ECOPETROL or any other government
entity.
|
|
|
The
main terms of the above-mentioned contracts are as
follows:
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Santana
Association Contract
|
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|
|
|
On
May 27, 1987 (effective date July 27, 1987), Argosy Energy
International, LP signed this association contract to explore for
and
produce oil, in the area called Santana. The contract is in its 19th
year
and the Company reduced the area to a 5 kilometer reserve area around
each
field. The remaining contract area is approximately 1,100
acres.
|
|
|
|
|
|
Under
the terms of the contract with Ecopetrol, a minimum of 25% of all
revenues
from oil sold to Ecopetrol is paid in Colombian pesos, which may
only be
utilized in Colombia. However, this proportion can be modified through
parties agreement.
|
|
|
|
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|
Aporte
Putumayo - Association Contract
|
|
|
|
|
|
The
Aporte Putumayo area has been returned to the Government. Such devolution
is subject to the approval of the environmental restoration of the
region
by the Environmental Ministry and the wells abandonment have to be
approved by Ecopetrol and the Ministry of Mines.
|
|
|
|
|
|
Río
Magdalena Association Contract
|
|
|
|
|
|
On
December 10, 2001 (effective date February 8, 2002), Argosy
Energy International, LP and Ecopetrol signed this Association Contract,
to explore and produce oil, in the area called Río Magdalena of
approximately 145,000 acres, located in the Middle Magdalena Valley
of
Colombia in the provinces of Cundinamarca and Tolima.
|
|
|
|
|
|
The
contract has a maximum duration of 28 years distributed as follows:
an exploration period of 6 years and a production period of 22 years
starting on the date of termination of the exploration period. The
exploratory well, Popa-1 was drilled during June and July, 2006 and
is on
the completion stage.
|
|
|
|
|
|
Upon
finalization of each phase, Argosy has the option to relinquish the
contract, once completed the obligations for each
phase.
|
|
|
|
|
|
BT
Letter Agreement
|
|
|
|
|
|
On
February 27, 2001 Argosy Energy International, LP signed a letter
agreement with BT Operating Company for the acquisition and management
of
the Río Magdalena Exploration Area. BT and Argosy mutually agreed to pay
their 50% share of costs under the terms of the Ecopetrol Association
contract and provide certain services toward management and compliance
of
the obligations.
|
|
|
|
|
|
As
of March 31, 2006 BT had not paid their obligations under this
agreement and outstanding accounts receivable of $355 related to
their
share of cost related to the Río Magdalena Association Contract were
provisioned as bad debts.
|
|
|
Guayuyaco
Association Contract
|
|
|
|
|
|
On
August 2, 2002 (effective date September 30, 2002) Argosy Energy
International, LP signed this association contract with Ecopetrol,
to
explore and produce oil, in the area called Guayuyaco. This Association
contract gives Argosy the right to explore potential reserves in
prospects
adjacent to the existing Santana oil field. The block is located
in the
Putumayo and Cauca provinces and covers approximately 52.000 acres
originally held under the Santana Risk Sharing
Agreement.
|
|
|
|
|
|
The
Guayuyaco contract has a maximum duration of 27.5 years with an
exploration period of 5.5 years and a production period of
22 years, which starts upon termination of the exploration
period.
|
|
|
|
|
|
During
the second exploration phase, two wells were drilled (Guayuyaco-1
and
Guayuyaco-2) which were successful. Therefore, on December 28, 2005
Ecopetrol accepted the Commerciality of the field.
|
|
|
|
|
|
Solana
Petroleum Exploration Commercial Agreement
|
|
|
|
|
|
Argosy
and Solana Petroleum Exploration entered into a commercial agreement
in
2003 whereby, Solana through fulfillment of certain obligations could
earn
a participating interest in the Inchiyaco Well Prospect (Santana
Association Contract) and have an option to enter the next exploration
prospect under the Guayuyaco Association Contract. Inchiyaco-1 was
drilled
and completed as a producing well in 2003 resulting in Solana’s sharing
26.21% interest in Argosy’s net share of the prospect.
|
|
|
|
|
|
The
commercial agreement was revised in 2004, giving Solana the right
to share
a 50% interest in Argosy’s net share of the Guayuyaco association contract
by paying 66.7% of two exploratory wells (Guayuyaco-1 and Juanambu-1)
and
50% for a new seismic program and additional projects.
|
|
|
|
|
|
Talora
Exploration and Exploitation Contract
|
|
|
|
|
|
On
September 16, 2004 (effective date) Argosy and the National
Hydrocarbons Agency (ANH) signed the Talora Exploration and
Exploitation Contract to explore and produce oil, in an area of
approximately 108,000 acres located in Tolima and Cundinamarca
Provinces.
|
|
|
|
|
|
The
contract has a maximum duration of 30 years with an exploration
period of 6 years and a production period of 24 years, which
starts upon the date in which Argosy receives the oil field commerciality
declaration from ANH.
|
|
|
|
|
|
The
contract may be relinquished at the end of each phase after fulfillment
of
the agreed obligations.
|
|
|
Argosy
and Petroleum Equipment International (PEI) signed a commercial
agreement on March 9, 2006. Through fulfillment of certain
obligations PEI could earn an 80% of Argosy’s interest under the ANH
contract on the Talora Block. In conjunction with such assignment,
Argosy
shall designate PEI as the operator previous approval of the
ANH.
|
|
|
|
|
|
Contractual
Commitments:
|
Phase
|
|
Starting
date
|
|
Obligations
|
3
|
|
December
16, 2006
|
|
One
exploratory well.
|
4
|
|
December
16, 2007
|
|
One
exploratory well.
|
5
|
|
December
16, 2008
|
|
One
exploratory well.
|
6
|
|
December
16, 2009
|
|
One
exploratory well.
|
|
|
The
contract may be relinquished at the end of each phase after fulfillment
of
the agreed obligations.
|
|
|
|
|
|
Chaza
Exploration and Exploitation Contract
|
|
|
|
|
|
On
June 27, 2005 (effective date) Argosy and the National Hydrocarbons
Agency (ANH) signed the Chaza Exploration and Exploitation Contract
to explore and produce oil, in an area of approximately 80,000 acres
located in Putumayo and Cauca Provinces.
|
|
|
|
|
|
The
contract has a maximum duration of 30 years with an exploration
period of 6 years and a production period of 24 years, which
starts upon the date in which Argosy receives the oil field commerciality
declaration from ANH.
|
|
|
|
|
|
The
ANH’s Resolution 0217, dated September 13, 2005, approved the 2005
assignment of 50% interest of the contract to Solana Petroleum
Exploration.
|
|
|
|
|
|
Contractual
Commitments:
|
|
|
|
|
|
Phase
|
|
Starting
date
|
|
Obligations
|
2
|
|
June
27, 2006
|
|
One
exploratory well.
|
3
|
|
June
27, 2007
|
|
One
exploratory well.
|
4
|
|
December
27, 2008
|
|
One
exploratory well.
|
5
|
|
December
27, 2009
|
|
One
exploratory well.
|
6
|
|
December
27, 2010
|
|
One
exploratory well.
|
|
|
The
contract may be relinquished at the end of each phase after fulfillment
of
the agreed obligations.
|
(2)
|
Summary
of Significant Accounting Policies and
Practices
|
(a) Foreign Currency Translation | ||
|
|
The
transactions and accounts of the Company’s operations denominated in
currencies other than US dollars are re-measured into United States
dollars in accordance with Statement of Financial Accounting Standards
FAS
52. The United States dollar is used as the functional currency.
Exchange
adjustments resulting from foreign currency balances are recognized
in
expense or income in the current
period.
|
(b) Cash Equivalents | ||
|
|
Cash
equivalents are highly liquid investments purchased with an original
maturity of three months or less.
|
(c) Inventories | ||
|
|
Inventories
consist of crude oil and materials and supplies and are stated at
the
lower of cost or market.
|
(d) Property, Plant and Equipment | ||
|
|
The
Company follows the full cost method to account for exploration and
development of oil and gas reserves whereby all productive and
nonproductive costs are capitalized. The only cost center is Colombia.
All
capitalized costs plus the undiscounted future development costs
of proved
reserves are depleted using the unit of production method based on
total
proved reserves applicable to the country.
|
|
|
|
|
|
Proved
oil and gas reserves are the estimated quantities of crude oil that
geological and engineering data demonstrate with reasonable certainty
can
be recovered in future years from known reservoirs under existing
economic
and operating conditions considering future production and development
costs.
|
|
|
|
|
|
Costs
related to initial exploration activities with no proved reserves
are
initially capitalized and periodically evaluated for impairment.
The
Company capitalizes internal costs directly identified with exploration
and development activities. The net capitalized costs of oil properties
are subject to a ceiling test, which limits such pooled costs to
the
aggregate of the present value of future net revenues attributable
to
proved oil and gas reserves discounted at 10% plus the lower of cost
or
market value of unproved properties. If capitalized costs exceed
this
limit, the excess is charged to expense and reflected as additional
accumulated depreciation, depletion and amortization.
|
|
|
|
|
|
While
the quantities of proved reserves require substantial judgment, the
associated prices of oil reserves that are included in the discounted
present value of the reserves are objectively determined. The ceiling
test
calculation requires use of prices and costs in effect as of the
last day
of the accounting period, which are generally held constant for the
life
of the properties. As a result, the present value is not necessarily
an
indication of the fair value of the reserves. Oil and gas prices
have
historically been volatile and the prevailing prices at any given
time may
not reflect our Partnership’s or the industry’s forecast of future
prices.
|
|
|
Gain
or loss on the sale or other disposition of oil and gas properties
is not
recognized, unless the gain or loss would significantly alter the
relationship between capitalized costs and proved reserves of oil
and gas
attributable to a country.
|
|
|
|
|
|
Support
equipment and facilities are depreciated using the unit of production
method based on total reserves of the field related to the support
equipment and facilities.
|
|
|
|
|
|
(e)Environmental
Liabilities and Expenditures
|
|
|
Argosy
accrues for losses associated with environmental remediation obligations
when such losses are probable and can be reasonably estimated. These
accruals are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation
obligations are not discounted to their present
value.
|
(f) Asset Retirement Obligations | ||
|
|
Liability
for asset retirement obligation is considered to be negligible at
this
time, based on projected production profiles, expiry dates and terms
of
the Association Contracts for current operations. However, the Company
has
accrued the costs related to environmental remediation and abandonment
of
the wells belonging to Aporte Putumayo
Contract.
|
(g) Concentration of Credit Risks | ||
|
|
All
of the Company’s production is sold to Ecopetrol; the sale price is agreed
between both parts, according to local regulations in
Colombia.
|
(h) Income Taxes | ||
|
|
Deferred
income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax basis and operating loss. Deferred tax assets and liabilities
are
measured using enacted tax rates expected to apply to taxable income
in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of
a change in tax rates is recognized in income in the period that
includes
the enactment date.
|
(i) Financial Instruments Fair Value | ||
|
|
The
carrying amounts of cash and cash equivalents approximate fair value
because of the short maturity of those instruments. The carrying
value of
other on-balance-sheet financial instruments approximates fair value,
and
the cost, if any, to terminate off-balance-sheet financial instruments
is
not significant.
|
(j) Employee Benefits | ||
|
|
The
Company recognizes the obligations with its employees in accordance
with
the current Colombian labor law. These obligations include the severance
indemnity and the legal service bonus each one equivalent to a monthly
salary per year and interest on severance at the rate of 12% on the
balance of severance indemnities paid. The relevant liability for
these
two concepts is shown under the “Employee benefits” account as current
liabilities at the closing of the
period.
|
(k) Defined Benefit Pension Plan | ||
|
|
The
Company has a defined benefit pension plan covering one employee.
The
benefits are based on years of service, age and the employee’s
compensation. Currently, the cost of this program is not being funded.
The
actuarial study is performed at the end of each year in accordance
with
the guidelines established by FAS
87.
|
(l) Use of Estimates | ||
|
|
The
preparation of financial statements in conformity with generally
accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during
the reporting period.
|
(m) Revenue Recognition | ||
|
|
The
Company recognizes revenue when the crude oil is delivered to
Ecopetrol.
|
|
|
|
|
|
Ecopetrol
pays the oil sales invoicing 25% in local currency and the 75% in
US
Dollars, according to the terms of the Oil Sales Contract executed
between
Ecopetrol and Argosy, through which the oil sale price is fixed,
with
expiration dated November 1,
2006.
|
(n) Management Fee | ||
|
|
The
Company accounts for the management fees received from its partners
as
operator of the contracts as a less value of the operating
costs.
|
(o) Comprehensive Income | ||
|
For
each period presented in the accompanying statements of income,
comprehensive income and net income are the same
amount.
|
|
|
|
|
(3)
|
Cash
and Cash Equivalents
|
|
|
|
|
|
The
following is a summary of cash and cash equivalents as of March 31,
2006 and December 31, 2005:
|
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
Held
in United States dollars
|
$
|
2,040
|
6,329
|
||||
Held
in Colombian pesos
|
157
|
394
|
|||||
Short-term
investments
|
473
|
401
|
|||||
$
|
2,670
|
7,124
|
(4)
|
Accounts
Receivable
|
|
|
|
|
|
The
following is a summary of accounts receivable as of March 31, 2006
and December 31, 2005:
|
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
Trade
|
$
|
3,248
|
675
|
||||
B.T.O.
Río Magdalena Agreement
|
355
|
355
|
|||||
Vendor
Advances
|
177
|
172
|
|||||
Petroleum
Equipment Investments - Talora
|
300
|
—
|
|||||
Other
|
173
|
104
|
|||||
|
4,253
|
1,306
|
|||||
Less
allowance for bad debts
|
(355
|
)
|
(355
|
)
|
|||
$
|
3,898
|
951
|
(5)
|
Property,
Plant and Equipment
|
|
|
|
|
|
The
following is a summary of property, plant and equipment as of
March 31, 2006 and December 31,
2005:
|
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
Oil
properties:
|
|
|
|||||
Unproved
|
$
|
3,831
|
3,622
|
||||
Proved
|
59,190
|
59,096
|
|||||
|
63,021
|
62,718
|
|||||
Less
accumulated depreciation, depletion, and amortization
|
53,885
|
53,695
|
|||||
$
|
9,136
|
9,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anticipated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
be
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
|
|
|
|
|
|
|
|
Exploration
Cost
|
|
Cost
Incurred
|
|
in
|
|||||||||||||||||||||
AFE
|
|
Contract
|
|
Detail
|
|
Dec-04
|
|
Dec-05
|
|
Mar-06
|
|
2004
|
|
2005
|
|
2006
|
|
Amortization
|
|||||||||||||
MARY
WELLWEST
PROSPECT
|
|
Santana
|
|
Geological
&
Geophysical
Data
|
|
|
287
|
|
|
|
287
|
|
|
|
287
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
Dec-06
|
|
MARY
WEST WELL
TESTING
|
|
Santana
|
|
Geological
&
Geophysical
Data
|
|
|
93
|
|
|
|
93
|
|
|
|
93
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Dec-06
|
|
Expl.
100% NEW PROJECTS
|
|
New
Projects
|
|
Geological
&
Geophysical
Data
|
|
|
253
|
|
|
|
363
|
|
|
|
375
|
|
|
|
253
|
|
|
|
110
|
|
|
|
12
|
|
|
Dec-06
|
|
Expl.
100% SANTANA
|
|
Guayuyaco
|
|
Geological
&
Geophysical
Data
|
|
|
1,044
|
|
|
|
1,044
|
|
|
|
1,044
|
|
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
Dec-06
|
|
Expl.
100% RIO MAGDALENA
|
|
Rio
Magdalena
|
|
Seismic
Program
|
|
|
634
|
|
|
|
808
|
|
|
|
889
|
|
|
|
634
|
|
|
|
174
|
|
|
|
81
|
|
|
Mar-07
|
|
TALORA
PROJECT
|
|
Talora
|
|
Seismic
Program
|
|
|
1
|
|
|
|
89
|
|
|
|
134
|
|
|
|
1
|
|
|
|
88
|
|
|
|
44
|
|
|
Sep-07
|
|
SEISMIC
GUAYUYACO
|
|
Guayuyaco
|
|
Seismic
Program
|
|
|
0
|
|
|
|
431
|
|
|
|
431
|
|
|
|
|
|
|
|
431
|
|
|
|
|
|
|
Dec-06
|
|
SEISMIC
CHAZA
|
|
Chaza
|
|
Seismic
Program
|
|
|
0
|
|
|
|
505
|
|
|
|
538
|
|
|
|
|
|
|
|
505
|
|
|
|
33
|
|
|
Sep-07
|
|
POPA-1
WELL
EXPLORATORY
|
|
Rio
Magdalena
|
|
Road
and Location Well
|
|
|
0
|
|
|
|
0
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
Mar-07
|
|
JUANAMBU-1
WELL
EXPLORATORY
|
|
Guayuyaco
|
|
Road
and Location Well
|
|
|
0
|
|
|
|
2
|
|
|
|
8
|
|
|
|
|
|
|
|
2
|
|
|
|
6
|
|
|
Jun-07
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Unproved
Exploration
Costs
|
|
|
|
|
|
|
2,312
|
|
|
|
3,622
|
|
|
|
3,831
|
|
|
|
2,312
|
|
|
|
1,310
|
|
|
|
208
|
|
|
|
|
|
All
capital excluded from capital costs being amortized relates to exploration
cost. No acquisition costs, development costs or capitalized interest
costs are identified.
|
(6)
|
|
Pension
Plan
|
|
|
|
|
|
The
following is a detail of the components of pension cost as of
March 31, 2006 and 2005:
|
March
31,
|
March
31,
|
||||||
2006
|
2005
|
||||||
Interest
cost
|
$
|
8
|
8
|
||||
Expected
return of assets
|
(13
|
)
|
(6
|
)
|
|||
Amortization
of unrecognized net transition obligation (asset)
|
1
|
1
|
|||||
Net
periodic pension cost
|
$
|
(4
|
)
|
3
|
(7)
|
|
Equity
|
|
|
|
|
|
Stockholders’
Capital
|
|
|
|
|
|
The
following is a detail of the stockholders’ participation in the capital as
of March 31, 2006 and December 31,
2005:
|
March
31,
|
December
31,
|
||||||
Stockholder
|
2006
|
2005
|
|||||
Crosby
Capital L.L.C.
|
$
|
98.75
|
98.75
|
||||
Argosy
Energy Corp. **
|
0.71
|
0.71
|
|||||
Dale
E. Armstrong
|
0.41
|
0.41
|
|||||
Richard
S. McKnight
|
0.13
|
0.13
|
|||||
$
|
100.0
|
100.00
|
|
|
|
**
|
|
Argosy
Energy Corp. is a general partner interest. All others are limited
partnership interests. Net income is allocated according to the
participation of each stockholder in the Company’s
capital.
|
|
|
Foreign
Exchange Restrictions
|
|
|
|
|
|
In
accordance with current legislation in Colombia, the branches of
foreign
companies in the oil industry are not under the obligation to refund
to
the Colombian exchange market the proceeds from their foreign currency
sales either inside or outside the country. The net proceeds from
oil
exports may be used by the branches of oil companies to reimburse
abroad
the capital and profits from the operation in Colombia. As a result
of
this foreign exchange liberation, the branch cannot purchase foreign
currency in the Colombian exchange market to remit profits, repatriate
capital, repay external debt or pay foreign currency
expenses.
|
|
|
|
|
|
Distributions
to Partners
|
|
|
|
|
|
On
March 30, 2006 the partners of Argosy Energy International resolved,
with the majority vote of its partners, distribute the amount of
$2,500 on
March 1, 2006 and $750 on March 30, 2006, ratably to each of its
partners.
|
(8)
|
|
Operating
Cost
|
|
|
|
|
|
The
following is a summary of operating cost incurred for the period
ended
March 31, 2006 and 2005:
|
March
31,
|
March
31,
|
||||||
2006
|
2005
|
||||||
Direct
labor
|
$
|
111
|
86
|
||||
Maintenance,
materials and lubricants
|
86
|
49
|
|||||
Repairs
- third party
|
123
|
196
|
|||||
General
expenses - other
|
47
|
33
|
|||||
$
|
367
|
364
|
(9)
|
|
Income
Taxes
|
|
|
|
|
|
All
of the income and income tax was derived from activities of the Branch
in
Colombia.
|
Deferred Remittance Tax | ||
|
|
Deferred
remittance tax is calculated based upon commercial net income. Commercial
net income of Colombian branches of foreign companies derived from
exploration, development or production of hydrocarbons is levied
an
additional remittance tax of 7%.
|
|
|
|
|
|
The
law establishes that when this income is reinvested in the country
for
five years, the payment of the remittance tax will be deferred, after
which time the payment of this tax will be exonerated.
|
|
|
|
|
|
Under
the law, reinvestment occurs when the net income remains five years
within
the equity of the entity.
|
|
|
|
|
|
Tax
Reconciliation
|
|
|
|
|
|
Income
tax expense attributable to income from continuing operations was
$1,126
and $412 for the periods ended March 31, 2006 and 2005, and differed
from the amounts computed by applying the Colombian income tax rate
of 35%
(the statutory tax rate of the partnership’s Branch) to pretax income from
continuing operations as a result of the
following:
|
March
31, 2006
|
March
31, 2005
|
||||||||||||
Amount
|
%
|
Amount
|
%
|
||||||||||
Income
before taxes
|
$
|
2,815
|
100.00
|
1,045
|
100.00
|
||||||||
Computed
“Expected” tax expense
|
985
|
35.00
|
366
|
35.00
|
|||||||||
Tax
expense
|
1,126
|
40.00
|
412
|
39.43
|
|||||||||
Difference
|
$
|
141
|
5.00
|
46
|
4.43
|
March
31, 2006
|
March
31, 2005
|
||||||||||||||||||
Basis
|
Amount
|
%
|
Basis
|
Amount
|
%
|
||||||||||||||
Explanation:
|
|
|
|
|
|
|
|||||||||||||
Difference
in principles and translation
|
$
|
(312
|
)
|
(109
|
)
|
(3.88
|
)
|
(86
|
)
|
(30
|
)
|
(2.87
|
)
|
||||||
Surcharge
tax (10%)
|
92
|
3.28
|
34
|
3.25
|
|||||||||||||||
Remitance
tax expense (7%)
|
146
|
5.19
|
42
|
4.02
|
|||||||||||||||
Inflation
adjustment
|
(23
|
)
|
(8
|
)
|
(0.28
|
)
|
—
|
—
|
|||||||||||
No
deductible expenses
|
9
|
3
|
0.11
|
—
|
—
|
||||||||||||||
No
deductible taxes (Industry and commerce, stamp tax)
|
41
|
14
|
0.51
|
—
|
—
|
||||||||||||||
Assessments
to financial movements
|
6
|
2
|
0.07
|
—
|
—
|
||||||||||||||
Income
not taxable
|
4
|
1
|
0.00
|
—
|
|
||||||||||||||
$
|
|
141
|
5.00
|
46
|
4.43
|
|
|
The
deferred tax is originated in the following temporary differences
as of
March 31, 2006 and December 31,
2005:
|
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
Accrued
liabilities
|
$
|
201
|
201
|
||||
Property,
plant and equipment
|
(674
|
)
|
(676
|
)
|
|||
Net
deferred tax liability
|
$
|
(473
|
)
|
(475
|
)
|
||
|
|||||||
Roll
forward of deferred taxes:
|
|||||||
Beginning
balance
|
475
|
223
|
|||||
Increase
in year
|
—
|
352
|
|||||
Translation
|
(2
|
)
|
(100
|
)
|
|||
$
|
473
|
475
|
Major
Changes Introduced by Law 863 (December 29,
2003)
|
|
1)
|
|
An
equity tax was created for fiscal years 2004, 2005 and 2006. Such
tax must
be liquidated applying at 0.3 % over the net equity at January
1
st
of
each year. This applies to equities of 3.000 million pesos in 2004,
3.183 million pesos in 2005 and 3.344 million pesos in
2006.
|
|
|
||
|
2)
|
|
The
financial transaction tax increased from 3 per thousand to 4 per
thousand
and it is applicable through the year 2007.
|
|
|
||
|
3)
|
|
Paid
taxes are not deductible except for 80% of industrial and commercial
and
Property Taxes.
|
|
|
||
|
4)
|
|
The
10% income tax surcharge (3.5%) is applicable for years 2003 through
2006.
This payment is not deductible for tax
purposes.
|
(10)
|
|
Settlement
Agreement with Aviva Overseas Inc.
|
|
|
|
|
|
Effective
August 19, 2005 Argosy Energy International, LP, Argosy Energy Corp.,
Crosby Capital, LLC, and Aviva Overseas, Inc. entered into a settlement
agreement which principal terms are as
follows:
|
|
1.
|
|
The
parties agreed that the agreement is a negotiated resolution of various
disputes between the parties.
|
|
|
||
|
2.
|
|
Aviva
Overseas, Inc. assigned and transferred all interests in the partnership,
corresponding to 29.6196%, to Argosy Energy International, LP as
a
redemption of such interests.
|
|
|
||
|
3.
|
|
Argosy
Energy International, LP is required to make the following payments
to
Aviva Overseas, Inc.: an initial cash payment of $300 as reimbursement
to
Aviva Overseas, Inc. for a portion of its cost incurred in connection
with
the disputes, a 90 day promissory note amounted to $3,050, a two year
promissory note in the amount of $1,125 (the “Note”, represented for 8
quarterly payments of $153 beginning in November 2005, including
interest at 8%), and an additional payment (described below) accrued
in
the amount of $329 as of the agreement date. As of March 31, 2006,
amounts outstanding under the agreement include $990 due on the Note
and
$310 accrued for the additional payment. The outstanding amount is
payable
as follows: $614 in 2006 and $686 in
2007.
|
The
additional payment is calculated as follows: after the earlier of
i) The
date Argosy Energy makes final payment of the “Note”, or (ii) after
the occurrence of an event of default, Argosy shall make a payment
in cash
in an amount equal to (i) $56,250 multiplied by the numeric amount
by
which the average daily closing price of the New York Mercantile
Exchange
nearby month contract for West Texas Intermediate crude oil over
the note
term exceeds $55 per barrel, reduced by (ii) all interest paid by
Argosy on the principal of the Note. The additional payment was recorded
at the date of the settlement agreement based on a calculation of
the
required payment at that date.
|
|
|
|
|
|
|
Type
of
|
Partner
|
|
Interest
|
|
interest
|
||
Crosby
Capital L.L.C.
|
|
|
98.7491
|
%
|
|
Limited
Partner
|
Argosy
Energy Corporation
|
|
|
0.7104
|
%
|
|
General
Partner
|
Dale
E. Armstrong
|
|
|
0.4122
|
%
|
|
Limited
Partner
|
Richard
S. McKnight
|
|
|
0.1283
|
%
|
|
Limited
Partner
|
Total
|
|
|
100.0000
|
%
|
|
|
(11)
|
|
Disagreement
Between Argosy Energy International and
Ecopetrol
|
|
|
|
|
|
As
of March 31, 2006 the contracting parties of Guayuyaco Association
Contract, Ecopetrol and Argosy Energy International, consulted with
their
legal advisors to clarify the procedure for allocation of oil produced
and
sold during the long term test of the Guayuyaco-1 and Guayuyaco-2
wells.
Ecopetrol has advised Argosy of a material difference in the
interpretation of the procedure established in the Clause 3.5 of
Attachment-B of the Guayuyaco association Contract. Ecopetrol interprets
the contract to provide that the extend test production up to a value
equal to 30% of the direct exploration costs of the wells is for
Ecopetrol’s account only and serves as reimbursement of its 30% back in to
the Guayuyaco discovery. Argosy’s contention is that this amount is merely
the recovery of 30% of the direct exploration costs of the wells
and not
exclusively for benefit of Ecopetrol. While Argosy believes its
interpretation of the Guayuyaco Association Contract is correct,
the
resolution of this issue is still pending of agreement between the
parties
or determination through legal proceedings.
|
|
|
|
|
|
The
estimated value of disputed production is $2,361,188 which possible
loss
is shared 50% ($1,180,594) with Solana Petroleum Exploration (Colombia)
S.A. partner in the contract and 50% Argosy.
|
|
|
|
|
|
At
this time no amount has been accrued in the financial
statements.
|
|
|
|
(12)
|
|
Subsequent
Events
|
|
•
|
|
The
Company signed in May and June, 2006 two new exploration and production
contracts with the National Hydrocarbons Agency (ANH) called Primavera
and
Mecaya, to explore and produce oil,
respectively.
|
|
|
These
contracts have a maximum duration of 30 years with an exploration
period of 6 years and a production period of 24 years, which
starts upon the date in which Argosy receives the oil field commerciality
declaration from ANH.
|
|
|
|
|
|
The
contracts may be relinquished at the end of each phase after fulfillment
of the agreed obligations.
|
|
•
|
|
On
April 1, 2006 the partners of the partnership entered into a
redemption agreement pursuant to which all of Dale E. Armstrong interest
and Richard S. McKnight interest.
|
|
|
||
|
•
|
|
On
June 21, 2006 Gran Tierra Energy Inc. acquired all of the outstanding
partnership interest in the
Company.
|
2005
|
2004
|
||||||
Oil
sales to Ecopetrol
|
$
|
11,891
|
6,393
|
||||
Operating
cost (note 9)
|
2,452
|
2,060
|
|||||
Depreciation,
depletion and amortization
|
697
|
357
|
|||||
General
and administrative expenses
|
1,082
|
859
|
|||||
|
|||||||
|
4,231
|
3,276
|
|||||
|
|||||||
Operating
profit
|
7,660
|
3,117
|
|||||
|
|||||||
Other
income, net (note 10)
|
449
|
225
|
|||||
|
|||||||
Income
before income and remittance taxes
|
8,109
|
3,342
|
|||||
|
|||||||
Current
income tax (note 11)
|
2,187
|
1,026
|
|||||
Deferred
income tax
|
352
|
245
|
|||||
Deferred
remittance tax
|
353
|
146
|
|||||
Total
income and remittance taxes
|
2,892
|
1,417
|
|||||
Net
Income
|
$
|
5,217
|
1,925
|
2005
|
2004
|
||||||
Assets
|
|
|
|||||
Current
assets:
|
|
|
|||||
Cash
and cash equivalents (note 3)
|
$
|
7,124
|
6,954
|
||||
Accounts
receivable, net (note 4)
|
951
|
584
|
|||||
Accounts
receivable reimbursement Ecopetrol
|
1,186
|
—
|
|||||
Inventories:
|
|||||||
Crude
oil
|
218
|
154
|
|||||
Materials
|
557
|
248
|
|||||
|
775
|
402
|
|||||
Total
current assets
|
10,036
|
7,940
|
|||||
|
|||||||
Other
long-term assets
|
16
|
10
|
|||||
Property,
plant and equipment (note 5):
|
|||||||
Unproved
properties
|
3,622
|
2,312
|
|||||
Proved
properties, net
|
5,401
|
3,211
|
|||||
|
9,023
|
5,523
|
|||||
Total
assets
|
$
|
19,075
|
13,473
|
||||
|
|||||||
Liabilities
and Partners’ Equity
|
|||||||
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
4,979
|
1,745
|
|||||
Tax
payable
|
1,326
|
826
|
|||||
Employee
benefits
|
103
|
88
|
|||||
Accrued
liabilities
|
522
|
375
|
|||||
Total
current liabilities
|
6,930
|
3,034
|
|||||
|
|||||||
Long-term
accounts payable (note 6)
|
686
|
—
|
|||||
Deferred
income tax
|
475
|
223
|
|||||
Deferred
remmittance tax
|
1,104
|
714
|
|||||
Pension
plan (note 7)
|
—
|
35
|
|||||
Total
liabilities
|
9,195
|
4,006
|
|||||
Partners’
equity (note 8)
|
9,880
|
9,467
|
|||||
Total
liabilities and Partners’ equity
|
$
|
19,075
|
13,473
|
|
2005
|
2004
|
|||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
5,217
|
1,925
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
Depreciation,
depletion and amortization
|
697
|
357
|
|||||
Bad
debt allowance
|
116
|
239
|
|||||
Deferred
income tax
|
352
|
245
|
|||||
Deferred
remittance tax
|
353
|
146
|
|||||
Pensions
|
24
|
59
|
|||||
Changes
in assets and liabilities:
|
|||||||
Accounts
receivable
|
(1,669
|
)
|
(191
|
)
|
|||
Inventories
|
(373
|
)
|
339
|
||||
Accounts
payable
|
2,620
|
1,245
|
|||||
Tax
payable
|
500
|
716
|
|||||
Employee
benefits
|
15
|
28
|
|||||
Accrued
liabilities
|
147
|
102
|
|||||
Deferred
income tax
|
(100
|
)
|
(4
|
)
|
|||
Deferred
remmittance tax
|
37
|
58
|
|||||
|
|||||||
Net
cash provided by operating activities
|
7,936
|
5,264
|
|||||
|
|||||||
Cash
flows from investing activities:
|
|||||||
Increase
in long term investments
|
(65
|
)
|
(70
|
)
|
|||
Additions
to property, plant and equipment
|
(4,197
|
)
|
(748
|
)
|
|||
|
|||||||
Net
cash used in investing activities
|
(4,262
|
)
|
(818
|
)
|
|||
|
|||||||
Cash
flows used in financial activities - Redemption of partnership interest
-
Aviva Overseas Inc.
|
(3,504
|
)
|
—
|
||||
|
|||||||
Net
increase in cash and cash equivalents
|
170
|
4,446
|
|||||
Cash
and cash equivalents at beginning of year
|
6,954
|
2,508
|
|||||
|
|||||||
Cash
and cash equivalents at end of year
|
$
|
7,124
|
6,954
|
Limited
|
General
|
Total
|
||||||||
partners’
|
partners’
|
partners’
|
||||||||
capital
|
capital
|
equity
|
||||||||
Balance
as of December 31, 2003
|
$
|
7,504
|
38
|
7,542
|
||||||
|
||||||||||
Net
income
|
1,915
|
10
|
1,925
|
|||||||
|
||||||||||
Balance
as of December 31, 2004
|
9,419
|
48
|
9,467
|
|||||||
|
||||||||||
Net
income
|
5,180
|
37
|
5,217
|
|||||||
|
||||||||||
Redemption
of partnership interest -
|
||||||||||
Aviva
Overseas Inc. (note 6)
|
(4,789
|
)
|
(15
|
)
|
(4,804
|
)
|
||||
Balance
as of December 31, 2005
|
$
|
9,810
|
70
|
9,880
|
Contract
|
|
Participation
|
|
|
Operator
|
|
Phase
|
|||||
Santana
|
|
|
35
|
%
|
|
ARGOSY
|
|
Exploitation
|
||||
Guayuyaco
|
|
|
70
|
%
|
|
ARGOSY
|
|
Exploitation
|
||||
Aporte
Putumayo
|
|
|
100
|
%
|
|
ARGOSY
|
|
Abandonment
|
||||
Río
Magdalena
|
|
|
70
|
%
|
|
ARGOSY
|
|
Exploration
|
||||
Talora
|
|
|
20
|
%
|
|
ARGOSY
|
|
Exploration
|
||||
Chaza
|
|
|
50
|
%
|
|
ARGOSY
|
|
Exploration
|
|
|
Starting
|
|
|
Phase
|
|
date
|
|
Obligations
|
3
|
|
December 16,
2006
|
|
One
exploratory well.
|
4
|
|
December 16,
2007
|
|
One
exploratory well.
|
5
|
|
December 16,
2008
|
|
One
exploratory well.
|
6
|
|
December 16,
2009
|
|
One
exploratory well.
|
|
|
|
|
|
|
|
Starting
|
|
|
Phase
|
|
date
|
|
Obligations
|
2
|
|
June 27,
2006
|
|
One
exploratory well.
|
3
|
|
June 27,
2007
|
|
One
exploratory well.
|
4
|
|
December 16,
2008
|
|
One
exploratory well.
|
5
|
|
December 16,
2009
|
|
One
exploratory well.
|
6
|
|
December 16,
2010
|
|
One
exploratory well.
|
2005
|
2004
|
||||||
Held
in United States dollars
|
$
|
6,329
|
6,454
|
||||
Held
in Colombian pesos
|
394
|
185
|
|||||
Short-term
investments
|
401
|
315
|
|||||
$
|
7,124
|
6,954
|
2005
|
2004
|
||||||
Trade
|
$
|
675
|
81
|
||||
B.T.
Río Magdalena Agreement
|
355
|
239
|
|||||
Vendor
advances
|
172
|
60
|
|||||
Solana
joint account
|
—
|
324
|
|||||
Other
|
104
|
119
|
|||||
|
1,306
|
823
|
|||||
Less
allowance for bad debts
|
(355
|
)
|
(239
|
)
|
|||
$
|
951
|
584
|
|
2005
|
2004
|
|||||
Oil
properties:
|
|||||||
Unproved
|
$
|
3,622
|
2,312
|
||||
Proved
|
59,096
|
56,218
|
|||||
|
62,718
|
58,530
|
|||||
Less
accumulated depreciation, depletion, and amortization
|
53,695
|
53,007
|
|||||
$
|
9,023
|
5,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anticipated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
be
|
|
|
|
|
|
|
Exploration
|
|
|
|
|