CVR Energy Inc. (CVI) 2010年年度報告「NYSE」.pdf

1、2 0 1 0 A N N U A L R E P O R TMOMENTUMAN INTERNATIONAL ENERGY PRODUCER ON THE RISE04 Selected Highlights06 Chairman and Chief Executive Officers Letter 08 Exploration and Operations Review 17 Operations Statistical Review18 Managements Discussion and Analysis 40 Managements Report41 Independent Aud

2、itors Report42 Consolidated Financial Statements45 Notes to the Consolidated Financial StatementsIBC Corporate InformationCalvalley Petroleum Inc.(“the Company”)has established a strong record of reserves growth from its initial Exploration and Production Project,at Block 9 in the Masila Basin of th

3、e Republic of Yemen.The Project is based on a Production Sharing Agreement(“PSA”)which was signed with the Government of Yemen.Since initiating commercial production in 2006,the Company has had consistently positive cash flows without the requirement for any debt financing which has provided a growt

4、h momentum that continues to carry Calvalley forward as a corporation.Calvalleys ongoing Block 9 exploration success has led to the successive development of the Hiswah,Al Roidhat,Auqban and,most recently,Ras Nowmah Fields.During 2010,the Company completed appraisal activities at Ras Nowmah which le

5、d to the acquisition of 340 kilometers of 2D seismic data.Interpretation of that data has produced two additional prospects for the Companys rich exploration asset inventory.The development of these fields has enabled the Company to continue investing in future growth activities.Since 2006,Calvalley

6、 has exported its production via truck transport through the Safer Petroleum export transit facility at Block 18,to the Red Sea port of Ras Isa.However,completion of the Companys new Bock 51 Truck Offloading Facility(“TOF”)will allow Calvalley to access the higher value export market afforded by the

7、 Masila Export Pipeline System(“MEPS”)to the Arabian Gulf port of Ash Shihr at Mukalla,Yemen.The near-term commissioning of the TOF will further enable the Company to pursue mid and long-term growth and to enhance shareholder value.EthiopiaYemenNote:All currency references are in United States dolla

8、rs unless otherwise indicated.2010 HAS BEEN A MILESTONE YEAR IN BUILDING A PLATFORM FOR GROWTH2)The Ras Nowmah-2 appraisal well confirmed the quality and highly productive nature of the field by producing 30 API crude oil at a stabilized rate of 3,000 bbls/day with only a 9.5%pressure drawdown and n

9、o formation water present.3)Due to both the discovery success at Ras Nowmah and to the successful implementation of the pressure maintenance program at the Hiswah Field,the Companys reserves grew at impressive rates.Proved plus Probable(“2P”)reserves increased to 31.8 mmbbls at December 31,2010 comp

10、ared to 26.5 mmbbls at December 31,2009 representing a 20%increase.During 2010,Calvalley successfully achieved a number of key accomplishments which are setting the stage for significant growth potential:1)Construction completion of the TOF at Block 51,which will be commissioned in the second quarte

11、r of 2011,will allow the Company to produce and sell a blend of all Block 9 crude oil production at the high value Masila Blend price.12010 Annual ReportCALVALLEY IS POSITIONEDCATALYSTSExploration SuccessKey Infrastructure Truck Offloading FacilityProduction GrowthSince initiating commercial product

12、ion in 2006,Calvalley has established a strong foundation for growth with effective long-range planning which prioritized exploration success,focused on significant reserves additions and established key scalable infrastructure.This enabled the Company to maintain limited but stable production which

13、 has funded all capital activities without the need for debt financing.Calvalley Petroleum Inc.2FOR GROWTHAs Calvalley begins operation of the TOF,it is initiating an active program of development and appraisal drilling that will unlock the full production and reserves potential of Block 9 in the Ma

14、sila Basin.And,with the Company having established an improved export outlet via the Masila Export Pipeline System,the TOF will enable the Company to market its blend of crude oil production at an improved price,equivalent to the traditional 26 API Masila Blend.Combined with the recent exploration s

15、uccess at Ras Nowmah,the acquisition and analysis of 340 kilometers of 2D seismic data has yielded two additional exploration prospects for a total of six.Additionally,the 31.8 mmbbls of 2P reserves,as verified in Calvalleys Reserves Report as at December 31,2010,has confirmed the Companys position

16、for continued production growth which will translate into increased shareholder value.32010 Annual ReportYears ended December 31,2010 2009 change$%Sales revenues,net of royalties($000s)39,494 31,354 26.0Funds flow from operations($000s)21,915 13,600 61.1Cash flow from operating activities($000s)21,5

17、92 13,971 54.5Net income($000s)10,941 2,951 370.8Shares outstanding(millions)at December 31 97.7 98.2(0.5)Weighted average shares outstanding(millions)97.9 98.9(1.0)Per common share(basic)Funds flow($/share)0.22 0.14 57.1 Cash flow($/share)0.22 0.14 57.1 Net income($/share)0.11 0.03 366.7 Production

18、(bbls/share)0.008 0.008 Proved+probable reserves(bbls/share)0.32 0.27 18.5Cash and GICs($000s)73,020 70,426 3.7Total assets at year-end($000s)190,710 172,991 10.2Long-term debt Oil production(bopd)2,256 2,160 4.4Exploration and development spending($000s)21,077 11,803 78.6Year-end proved+probable re

19、serves(mbbls)31,824 26,540 19.9Reserve replacement ratio(proved+probable)740%343%215.7Wells drilled(number)7 3 233.3Realized oil price($/bbl)85.44 57.08 49.7Dated Brent oil price($/bbl)86.48 61.67 40.2Note:All currency references are in United States dollars unless otherwise indicated.SELECTED HIGHL

20、IGHTSCalvalley Petroleum Inc.4Over the past five years,Calvalley has demonstrated a strong and consistent record of reserves growth.During 2010,the Company realized year-over-year growth of 31%for proved reserves,20%for proved plus probable reserves,and 21%for proved plus probable plus possible rese

21、rves.Over the past five years,1P reserves have increased by 174%,2P reserves have increased by 179%,and 3P reserves have increased by 194%.While continuing to fund its capital development program through the production and sale of crude oil from Block 9,the Company has maintained strong three-year a

22、verage reserve replacement ratios of 408%for proved reserves,730%for proved plus probable reserves,and 1,093%for proved plus probable plus possible reserves.The Company has efficiently realized its strong reserves growth.Attractive three-year average finding and development costs of$5.70/bbl for 1P

23、reserves,$2.55/bbl for 2P reserves,and$2.16/bbl for 3P reserves.The Company has consistently funded the majority of exploration and development activities through operating cash flows.As a result,Calvalley has maintained strong working capital ranging between$69.7 million and$75.8 million over the p

24、ast five years.201069,683200672,352200775,059200875,775 200970,705Working Capital($mm)2007 23.38516.4688.065200835.41824.62311.476Reserves(mmboe)200939.49926.5411.907201047.30431.82415.573 200624.52717.7348.933 ProvedProbablePossible Finding and Development CostsThree-year average($/boe)5.70Proved2.

25、55Proved plus Probable2.16Proved plus Probable plus Possible 2008408%2009730%20101093%Reserves Replacement RatioThree Year Average(%)Calvalley continues to execute its growth strategies while incurring no debt.$0Debt52010 Annual ReportCHAIRMAN AND CHIEF EXECUTIVE OFFICERS LETTERI am pleased to repor

26、t to you the Companys financial and operating results for the 2010 fiscal year.Our strong team of experienced personnel in both Yemen and in Calgary has contributed to continued efficient reserve growth along with the establishment of key infrastructure projects and ongoing enhancement of exploratio

27、n potential.These important developments clear the way for significant near-term production growth which will lead to enhanced shareholder value.The Company continued its strong record of consistent reserve growth during 2010.Proved plus probable reserves rose to 31.8 mmbbls at December 31,2010,repr

28、esenting a 20%increase over the 26.5 mmbbls reported at December 31,2009.An equally important component of our achievements in exploring for and successfully appraising and developing new discoveries is the efficiency with which we have realized success.Finding&Development(“F&D”)costs for 2010 amoun

29、ted to$3.22/bbl for proved(“1P”)reserves,$0.64/bbl for proved plus probable(“2P”)reserves,and$0.80/bbl for proved plus probable and possible(“3P”)reserves.In addition to cost containment in the short-term,we have demonstrated industry-leading exploration cost efficiency over the longer term.On a thr

30、ee-year average basis,our F&D costs were$5.70/bbl for 1P reserves,$2.55/bbl for 2P reserves,and$2.16/bbl for 3P reserves.Our exploration success resulted in part from the successful appraisal well at Ras Nowmah-2 which flowed at a stabilized rate of 3,000 bbls/day of 30 API crude oil with no formati

31、on water and with only a 9.5%pressure drawdown during production tests.We have also made significant progress in implementing our pressure maintenance program at the Hiswah Field.Calvalley Petroleum Inc.6During the first quarter of 2011,the Company also completed drilling of the Qarn Qaymah-3(“QQ-3”

32、)appraisal well which is currently undergoing a pressure build-up in preparation for full field assessment.The Company has also focused significant energy and resources to relieve transportation and marketing bottlenecks by constructing a new TOF at Block 51.As Calvalley nears completion of the TOF,

33、the Company begins an active program of development and appraisal drilling that will unlock the full potentiality of Block 9 in the Masila Basin.And with the Company having established an improved export outlet,via the Masila Export Pipeline System,the TOF will enable the Company to market its blend

34、 of better than 26 API crude at a price equivalent to the traditional Masila Blend.With regard to Calvalleys project in Ethiopia,surface geological work at the Metema and Gimbi Blocks was completed and fully evaluated.Based on the surface geological work,Calvalley undertook the acquisition of aeroma

35、gnetic survey data over a region covering an area of approximately 26,000 square kilometers.The Company is currently interpreting and mapping the coverage area based on the results of this aeromagnetic survey.Looking to the future,your management will continue to focus on its strategy of continued e

36、xploration success along with a marked increase in production from the Block 9 project in Yemen.I would like to thank the Calvalley team and the Board of Directors for their outstanding efforts and achievements during 2010 and their continuing efforts to maximize shareholder value.Sincerely,Edmund S

37、himoonChairman and Chief Executive OfficerMarch 31,20112010 Annual Report7EXPLORATION AND OPERATIONS REVIEWStrategies?and production capacity to markedly increase production of all crude reserves on Block 9?Block 9 to increase the Companys reserve base?and development activities through internally-g

38、enerated cash flowsStrategies?area based on the results of the aeromagnetic survey completed during 2010?as warranted by the Companys geological and geophysical teamExecution and Outlook?Facility at Block 51 and expand production and deliveries of oil reserves from the Hiswah,Al-Roidhat,and Ras Nowm

39、ah Fields?program at the Hiswah Field?Block 9Execution and Outlook?aeromagnetic survey,the Company may pursue additional acquisition of technical data with the objective of identifying leads and prospectsYemenEthiopiaCalvalley Petroleum Inc.8Indian OceanETHIOPIAYEMENUgandaRuandaBurundiKenyaSomaliaSu

40、dan Adis AbabaSanaaMETEMAGIMBIBLOCK 9 EgyptLibyaChadCentral African RepublicSaudi ArabiaUnited Arab EmiratesOmanIraqTurkeyTurkmenistanSyriaArmeniaAzerbaijanJordanKuwaitIranDemographic Republic of CongoUnited Republic of TanzaniaMozambiqueZambiaZimbabweRed SeaAngolaCongo92010 Annual Report2500 M500 M

41、QishnAUQBAN-2AUQBAN-1QUARN QAYMAH-2QUARN QAYMAH-1SaarNaifaMadbiShuqraBasementPrecambrianSaar FmValanginian UnconformityAptian UnconformityMukalla FmHarshiyat FmQishn CarbsNaifa FmMadbi FmShuqra FmBasementKohlan FmWadiUmm ErRadhumaFmZONE OF INTERESTFIELD DISCOVERYHARSHIYAT SANDRAS NOORPALEOGENECRETAC

42、EOUSJURASSICQISHN CLASTICS SANDAL ROIDHAT,HISWAH,RAS NOWMAHSAAR DOLOMITEAL HEDBA,RAS NOWMAHSAAR/NAIFA LIMESTONEHISWAHSHUQRA LIMESTONEAUQBAN FRACTURED BASEMENTQARN QAYMAHGRANITE WASH/KOHLAN SANDQARN QAYMAH,AUQBAN0m500m1,000m1,500m2,000m2,500m3,000m3,500m4,000mEXPLORATION AND OPERATIONS REVIEWYemen Bl

43、ock 9Block 9 occupies the western part of the Sayun-Masila Basin.The Sayun-Masila Basin is an important extensional basin initiated in the middle Jurassic.Prior to the rifting event,the Arabian craton was exposed and sandstones of the Kohlan Formation were deposited in a dominantly fluvial environme

44、nt.Subsidence in the early to middle Jurassic resulted in a regional marine transgression,during which time the Kohlan sandstones were re-worked and carbonate deposition of the Shuqra Formation was initiated.The basal Kohlan sandstones and overlying Shuqra carbonates both contain reservoir quality r

45、ock and are sealed by tight carbonates and shales.Both reservoirs are oil-charged at Auqban and the Kohlan is one of the primary reservoirs at Qarn Qaymah.Onset of rifting began in Oxfordian-Kimmeridgian time.The Jurassic rifting event was responsible for the creation of restricted marine embayments

46、 where the Madbi Formation source-rock shale was deposited.Continued extensional rift tectonics and basin subsidence resulted in the dramatic thickening of sediments within the rift basins.Both grabens and half-grabens are developed within the Sayun-Masila Basin.Basin-margin faults are often viewed

47、as growth-faults and the basinal sediments appear to on lap pre-existing basement horst blocks.The rifting phase was followed in the Cretaceous by structural sagging.Development of the sag basin was the result of both continued subsidence and differential compaction.These processes resulted in the d

48、raping of sediments over pre-existing basement horst blocks.The structural draping results in positive structural closures that are the primary targets for oil exploration in Block 9.Stratigraphic Column for Block 9Composite Seismic Line 06CV-45 to CY9-91-W9SAYUN-MASILA BASINCalvalley Petroleum Inc.

49、1057AUQBANHISWAHRAS NOWMAHAL ROIDHATQARN QAYMAHGas capOil poolBlock 9ConcessionsThe Sayun-Masila Basin has attractive source-reservoir-seal combinations.Oil that has been generated from the Madbi source rock is responsible for charging all reservoirs in Block 9.Oil migrating out of the source-rock b

50、asins can charge prospective reservoirs both laterally and vertically via faults.Saudi ArabiaS2210517132539Yemen 2 OMV 9 CALVALLEY10 TOTAL32 DNO51 CDN NEXEN53 DOVE ENERGY71 SINOPECS2 OMV2010 Annual Report11EXPLORATION AND OPERATIONS REVIEWYemen Block 9 Al Roidhat Development of Al Roidhat continued

51、during 2010.Calvalley worked over the four wells which had previously been completed and tested and completed three additional wells.Extended production tests were conducted to better understand the sustainable production capability of the wells and the field.Currently six wells are fully equipped a

52、nd ready to commence production as soon as the TOF is completed at Block 51.Production from these wells will be accumulated at the field storage tanks from which oil will be transported by tanker truck to the CPF for blending with lighter oil produced by other fields.The wells are ready to produce.Y

53、emen Block 9 HiswahDuring 2010,Calvalley successfully completed the drilling of five horizontal producers at Hiswah.The first three wells were placed on production at an initial flow rate of approximately 250-400 bbls/day with no water.The remaining two wells are currently shut-in awaiting delivery

54、of downhole pumps(ESPs).The wells produced at rates better than modelled production rates as a result of our improved reservoir modeling and completion techniques.The successful development of these wells resulted in an upward revision of recoverable reserves in both Proved and Proved plus Probable

55、categories from the field by the independent reserve engineers.The Company is also continuing its pressure maintenance and production optimization program for the Hiswah Field.The pressure maintenance program at Hiswah involves the reinjection of produced gas to reduce flaring and increase oil recov

56、eries.During 2010,Calvalley commenced Hiswah water injection at 6,500 bbls/day with a single horizontal well,H-26,which has been performing better than expected.The Company also commissioned a second water injector(H-25)which is also performing better than expected.The Company will continue to monit

57、or long-term performance of water injection as a means of pressure maintenance to optimize the ongoing development of the field and to extend the life of plateau production.Up to five more water injectors are included in the 2011 drilling program.The Company plans to drill two of these wells in the

58、first half of 2011.Management expects a total water injection volume greater than 25,000 bbls/day by the end of 2011.With the recent installation of gas compression facilities,the Company is currently injecting more than 2 mmcf/day of produced gas into the Hiswah Field.An additional injection well i

59、s currently being tied-in in an attempt to increase gas injection up to the compression facilitys capacity of approximately 5 mmcf/day.The pressure maintenance scheme is expected to reduce the natural field production decline and to improve the recovery percentage.Calvalley Petroleum Inc.12EXPLORATI

60、ON AND OPERATIONS REVIEWYemen Block 9 Qarn Qaymah Drilling of the Qarn Qaymah-3 appraisal well was completed on March 8,2011 to a total depth of 4,460 meters,including an openhole section of approximately 1,000 meters in the Fractured Granitic Basement(“FGB”).The wellbore image logs and electrical l

61、ogs indicate that the openhole section encountered a number of fractured sections in the FGB.On March 9,2011,Calvalley began testing of QQ-3.The well is currently undergoing pressure build up.Due to the complicated nature of the FGB reservoirs,the testing program is usually a lengthy process and is

62、expected to be completed in the second quarter of 2011.Calvalley has retained the services of two reputable reservoir consulting firms in Calgary to analyze the wellbore image logs and electrical logs in order to better define and model the reservoir.Yemen Block 9 Ras NowmahThe Company successfully

63、drilled the Ras Nowmah-2 appraisal well in record time with a total gross hydrocarbon column of 57 meters including 41 meters in the Qishn and 16 meters in the Saar Formations.The initial test results have significant implications for the future exploration and development of Block 9.The first impli

64、cation is lighter oil contrary to previous belief that Qishn structures in Block 9 contain only heavy oil,the Ras Nowmah discovery has proven that the Block 9 Qishn structures are similar to those in the Masila block.The success of Ras Nowmah has added a new and exciting exploration dimension to Cal

65、valleys already rich portfolio of prospect inventory.As a result,both of the near-term and long-term exploration programs are expected to expand significantly.Ras Nowmah is situated along a prospective fairway where Calvalley has already identified several other Qishn structures based on new seismic

66、 interpretation.The success of Ras Nowmah-2 has reduced the geological risk of exploration drilling on these structures.Calvalley has recently commenced drilling of the Ras Nowmah East-1(“RNE-1”)exploration well.The well is targeting both Qishn and Saar Formations similar to those of the Ras Nowmah

67、wells.The well is expected to reach total depth by mid-April 2011,at which time the drilling rig will be mobilized to the Ras Nowmah Field to drill two successive development wells(RN-4 and RN-5).2010 Annual Report13EXPLORATION AND OPERATIONS REVIEWOil Transportation and MarketingThese efforts were

68、rewarded in February 2010 with the execution of agreements which will enable Calvalley to activate shut-in Al Roidhat wells and transport blended crude of 26 API or higher from Block 9 through the Masila System.Immediate production growth is expected to be realized upon completion of the TOF which i

69、s pictured above.A critical component of Calvalleys future success is the ability to market different qualities of crude without delivery restrictions which limit production to reservoirs containing light,sweet crude.During 2010,Calvalley management focused on negotiating transportation agreements w

70、hich would allow the Company to commence production from all existing and future discoveries on Block 9.Block 18Block 4Calvalley Block 9Block 14Gas pipelineOil pipelineCalvalley key blockCalvalley Petroleum Inc.14EXPLORATION AND OPERATIONS REVIEWExploration Upside:YemenCalvalley has successfully com

71、pleted a 340 kilometer 2D seismic program over the Plateau area which covers the Ras Nowmah discovery and nearby structures such as Sueda,East Ras Nowmah,North Ras Nowmah,South Ras Nowmah,Al Hedba,Al Gadafir and Malik.The final processing of the 2D seismic indicates that good quality data have been

72、acquired.The final interpretation suggests better than expected prospectivity over the coverage area.To date,two additional prospects have been identified for a total of six in the Qishn Formation.Ethiopia:ExplorationEthiopia represents an opportunity for Calvalley to diversify its operations outsid

73、e Yemen.Surface geological work at the Metema and Gimbi Blocks in Ethiopia has been completed and fully evaluated.Based on the surface geological work,Calvalley has completed the acquisition of aeromagnetic survey data over a region covering an area of approximately 26,000 square kilometers.The Comp

74、any is currently interpreting and mapping the coverage area based on the results of this aeromagnetic survey.2010 Annual Report15 AL AKABAQ,ScAL HORGQ,ScEL ALDWIQ.Sc,S/N K,BWADI EL BAN EL GARBQ.Sc,S/N,K,BNORTH QARN QAYMAHMASVANQMAHBUDLMWADI EL AFARQ.Sc,S/N,K,BSq,K,BK,BRUBEYA NWRUBEYA K,BGOREIDSc,LM,

75、K,BN.DAYSAHQ.ScN.HISWAHS/NSOUTH QARN QAYMAHK,BMALIK PLATEAUQ.BAL KHOWEITQ.Sc,K,BSOLEYLQ.Sc,LM,K,BSAGHIRAS/NEL GADAFIRQ,ScTAHIAQ,ScSUEDAQ,SdDAHBILQ,Sc,K,BEL GADAFIRQ.ScRAS NOWMAH NORTHQ,SdRAS NOWMAH SOUTHQ,SdAL HEDBAPLATEAUAL HEDBABAFARAGQ.SdRAS NOWMAH EASTQ,SdAL FURAGQ,SdSHAMEH/SHARKIA/DARINH,QQRASN

76、AFOODH,QMALIKHISWAHS/NQARN QAYMAHAL ROIDHATAUQBANRAS NOWMAHRAS NOORYemen Pools,Prospects and LeadsEXPLORATION AND OPERATIONS REVIEW Gas pool Oil pool Prospect/leadH HarshiyatQ Qishn clasticsSc Saar clasticsSd Saar dolomiteS/N Saar/Naifa carbonatesLM Lower Madbi build ups and debris fanGW Granite Was

77、hK KohlanB BasementCalvalley Petroleum Inc.16OPERATIONS STATISTICAL REVIEWDrilling ActivityThe Company drilled one exploration well,two appraisal wells and five development wells during 2010.As a result of the production testing activity at Ras Nowmah and field optimization work at the Hiswah Field,

78、the Companys proved and probable reserves increased to 31.8 million bbls at December 31,2010,representing a 20%increase(23%including reserves produced in 2010)over the 26.5 million bbls at December 31,2009.Production Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2010 2010 2010 2010 2009 2009 2009 2009Oil and NGL (Block 9

79、 gross boe/day)4,334 4,512 4,606 4,597 4,404 4,184 4,164 4,532Oil and NGL (Calvalley working interest boe/day)2,167 2,256 2,303 2,299 2,202 2,092 2,082 2,266Production rates during 2010 were generally stable.While four development wells were drilled at Hiswah,the production increase has been offset

80、by the fact that as of year-end,twelve producing wells remained shut-in due to delays in delivery of production equipment.Reserves and NPV NPV NPV Reserves (10%After Tax)(8%After Tax)Gross(WI)Net(after royalty&tax)(MMbbls)(MMbbls)($million)($million)Proved Developed producing 3.8 2.3 75.7 78.5Develo

81、ped non-producing 4.7 2.6 89.1 92.3Undeveloped 10.9 4.9 125.3 135.5Total Proved 15.7 7.5 214.4 227.8Probable 16.3 6.9 180.2 199.6Total Proved+Probable 31.8 14.4 394.7 427.3Possible 15.8 6.0 165.0 188.2Total Proved+Probable+Possible 47.6 20.3 559.7 615.5*Based on McDaniel forecast prices(Jan 2011 For

82、ecast)2010 Annual Report17ManageMents Discussion anD analysisReferences to“Calvalley”or the“Company”refer to Calvalley Petroleum Inc.and its share of consolidated subsidiaries and joint ventures unless the context indicates otherwise.All currency references are to United States dollars unless otherw

83、ise specifically indicated.References to“C$”are to Canadian dollars.The purpose of this Managements Discussion and Analysis(MD&A)is to provide readers the ability to view Calvalley in much the same way as Company management.The following combination of historical and prospective information and fina

84、ncial and business analyses,together with the consolidated financial statements,are intended to impart useful knowledge to investors and other readers.This MD&A should be read in conjunction with the Companys unaudited consolidated financial statements and related notes for the year ended December 3

85、1,2010.Additional information relating to the Company,including the Companys Annual Information Form,is available on SEDAR at or on the Companys website at .References in text or tables throughout this document to“2010”,“2009”,and“2008”refer to the years ended December 31,2010,2009 and 2008,respecti

86、vely.References in text or tables labelled“Q4”,“Q3”,“Q2”and“Q1”refer to the periods ended December 31,September 30,June 30 and March 31,respectively,of the year indicated.This MD&A contains information current to March 22,2010.non-gaaP MeasuResFunds Flow From operationsFunds flow from operations is

87、a measure not recognized under Canadian generally accepted accounting principles(GAAP)that represents funds generated from operating activities before changes in non-cash working capital.Funds flow from operations should not be considered an alternative to,or more meaningful than,cash flow from oper

88、ating activities.Management believes that funds flow from operations is a useful supplemental measure to analyze the Companys ability to generate cash flow to fund capital investment and working capital requirements.Funds flow from operations may not be comparable to similar measures used by other c

89、ompanies.eBitDa and operating incomeEarnings before interest,taxes,depreciation and amortization(EBITDA)and operating income are non-GAAP measures.The Company calculates EBITDA as revenue net of royalties,operating expenses,taxes,and general and administrative expenses.The Company calculates operati

90、ng income by deducting depletion,depreciation and amortization expense from EBITDA.Management believes that EBITDA and operating income are useful supplemental measures to analyze operating performance and to provide an indication of the results generated by the Companys principal business activitie

91、s prior to the consideration of other income and expenses.EBITDA and operating income may not be comparable to similar measures used by other backNetback is a non-GAAP measure that represents oil and natural gas revenue net of royalties,operating expenses and current taxes.Management believes that n

92、etback is a useful supplemental measure to analyze operating performance and provides an indication of the results generated by the Companys principal business activities prior to the consideration of other income and expenses.Netback may not be comparable to similar measures used by other companies

93、.Finding and Development costsFinding and development costs refers to all current year capital expenditures excluding property acquisitions,property dispositions and corporate office expenditures and including changes in future development capital on a proved and proved plus probable basis(as applic

94、able).“Finding and development costs per barrel of oil equivalent”(“F&D$/boe”)is calculated by dividing finding and development costs by the current years reserve extensions,discoveries and revisions on a proved or proved plus probable reserve basis(as applicable).Calvalley Petroleum Inc.18selecteD

95、QuaRteRly inFoRMation 2010 2009($000s unless otherwise noted)Full year Q4 Q3 Q2 Q1 Full Year Q4 Q3 Q2 Q1Avg.production volume Calvalley share(bopd)2,256 2,167 2,256 2,303 2,299 2,160 2,202 2,092 2,082 2,266Average sales volume(bopd)2,186 2,804 2,839 973 2,115 2,440 2,081 2,020 3,695 1,967Average rea

96、lized price($/bbl)80.03 85.44 76.10 84.70 75.91 57.08 73.83 67.74 51.30 38.75Oil sales 63,867 22,042 19,877 7,499 14,449 50,839 14,136 12,591 17,252 6,860Oil sales,net(1)39,494 13,681 12,328 4,564 8,921 31,354 8,742 7,766 10,686 4,160Cash flow from operating activities 21,592 11,863 1,150 3,457 5,12

97、2 13,971 9,271 3,587 3,325(962)Funds flow from operations(1)21,915 7,976 6,744 1,926 5,269 13,600 4,652 4,453 4,644(149)Funds flow from operations per share($/share)(1)Basic and diluted 0.22 0.08 0.07 0.02 0.05 0.14 0.05 0.04 0.05 0.00Net income(loss)10,941 4,987 2,744 485 2,725 2,951 2,109 2,122 76

98、5(2,045)Net income(loss)per share($/share)Basic and diluted 0.11 0.05 0.03 0.01 0.03 0.03 0.02 0.02 0.01(0.02)Working Capital 69,683 69,683 73,293 72,650 72,182 70,705 70,705 71,278 72,059 72,599Total assets 190,710 190,710 176,970 172,390 172,378 172,991 172,991 165,178 164,193 165,683Long-term deb

99、t (1)Revenue net of royalties and government share of profit oil(2)See“Non-GAAP Measures”.See“Operating Activities”in“Consolidated Cash Flow”section for reconciliation between Funds flow from operations and Cash provided by(used in)operations.oVeRall PeRFoRManceNet income for the year ended December

100、 31,2010 was$10.9 million versus$3.0 million for 2009.Working capital at December 31,2010 decreased to 69.7 million from$70.7 million at December 31,2009.Funds flow from operations for the year ended December 31,2010 improved to$21.9 million from$13.6 million for the year ended December 31,2009.Duri

101、ng the year ended December 31,2010,the Companys ability to generate positive funds flow from operations enabled it to finance its capital program and to buy back 718,662 shares at a cost of$2.2 million representing an average cost of C$3.13/share.The Company continues to generate cash flow from its

102、operations at Block 9 in the Republic of Yemen.2010 Annual Report19Business enViRonMentCalvalley produces high quality crude oil sold at world prices.As such,the Companys financial results are significantly influenced by fluctuations in commodity prices.The following table shows selected market benc

103、hmark prices as well as the Companys realized selling price of oil for the five most recent quarters:2010 Q4 2010 Q3 2010 Q2 2010 Q1 2009 Q4Dated Brent average oil price($/bbl)86.48 76.86 78.24 76.37 74.53Calvalley realized price($/bbl)85.44 76.10 84.70 75.91 73.83Premium/(discount)to Dated Brent(1.

104、04)(0.76)6.46(0.45)(0.70)The price of Dated Brent oil averaged$86.48/bbl in Q4 2010,an increase of 16%from the Q4 2009 price of$74.53/bbl.The price of Dated Brent oil reached a record high of$144.23/bbl.However,financial market instability and a worldwide recession resulted in a steep decline in the

105、 price of Dated Brent oil from August to December 2008.During 2009 and into 2010,the price of oil recovered some of this decline.The price of Dated Brent oil at December 31,2010 was$92.55/bbl.outlooKAs Calvalley nears completion of the Truck Offloading Facilities(“TOF”)at Block 51,the Company is ent

106、ering an active phase of the development and appraisal drilling program to unlock the production and reserves potential of Block 9.As well,with the Company having established an improved export outlet,via the Masila Export Pipeline System(“MEPS”),the TOF will enable the Company to market its blend o

107、f better than 26 API crude at a price equivalent to the traditional Masila Blend.At the field level,Calvalley has positioned itself to gradually increase its production of blended crude to 10,000 bopd (5,000 bopd net).In that regard,the Company continues to add new development wells at its Hiswah an

108、d Ras Nowmah fields in preparation for the production increase.As well,the shut-in Al Roidhat wells are set to begin production which will be trucked for storage at the CPF until the TOF is commissioned.During Q4 2010,Calvalley successfully drilled a development well at the Al Roidhat field encounte

109、ring 22 meters(72 feet)of net oil pay with average porosity of 23.5%.The well is now completed and is currently being production tested.Drilling of the Qarn Qaymah-3(“QQ-3”)appraisal well was completed on March 8,2011 to a total depth of 4,460 meters including an openhole section of approximately 1,

110、000 meters in the Fractured Granitic Basement(“FGB”).The wellbore image logs and electrical logs indicate that the openhole section encountered a number of fractured sections in the FGB.On March 9,2011,Calvalley began testing of QQ-3.The well is currently undergoing pressure build up.Calvalley has r

111、etained services of two reputable reservoir consulting firms in Calgary to analyze the well bore image logs and electrical logs in order to better define the reservoir.Calvalley has recently commenced drilling of the Ras Nowmah East-1(“RNE-1”)exploration well.The well is targeting both Qishn and Saa

112、r Formation similar to those of the Ras Nowmah wells.The well is expected to reach total depth by mid-April 2011,at which time the drilling rig will be mobilized to the Ras Nowmah Field to drill two successive development wells(RN-4 and RN-5).Calvalley Petroleum Inc.20We have successfully completed

113、a 2D seismic program of 340 km over the Plateau area which covers the Ras Nowmah discovery and nearby prospects such as Sueda,Ras Nowmah East,Al Hedba,Al Gadafir,and the Malik Plateau.The recent mapping and interpretation of the seismic program data indicates a better than expected prospectivity of

114、the coverage area.Two new prospects over the Plateau have also been identified.With regard to Block 9 infrastructure developments,Calvalley has recently commenced technical work associated with an inter-field pipeline connecting the Al Roidhat and Ras Nowmah fields to the Hiswah CPF.During 2010,Calv

115、alley commenced Hiswah water injection at 6,500 barrels a day with a single horizontal well,H-26,which has been performing better than expected.The Company also commissioned a second water injector(H-25)and is monitoring the well performance.Up to five more water injectors are included in the 2011 d

116、rilling program.Two of these wells will be drilled in the first half of 2011.We expect a total water injection volume greater than 25,000 bbl/d by the end of 2011.As well,with the recent installation of gas compression facilities,we are currently injecting more than 2 MMcf/d of produced gas into the

117、 Hiswah Field.An additional injection well is currently being tied-in in an attempt to increase gas injection up to the compression facilitys capacity of approximately 5MMcf/d.The pressure maintenance scheme is expected to reduce the natural field production decline and to improve the recovery perce

118、ntage.Surface geological work at the Metema and Gimbi Blocks in Ethiopia has been completed and fully evaluated.Based on the surface geological work,Calvalley has completed the acquisition of aeromagnetic survey data over a region covering an area of approximately 26,000 square km.The company is cur

119、rently interpreting and mapping the coverage area based on the results of this aeromagnetic survey.eXPloRation anD DeVeloPMent PRogRaMBlock 9 Republic of yemenJoint Operating Agreement(JOA)Substantially all of Calvalleys operations and assets are related to its 50%working interest in the Block 9 Pro

120、duction Sharing Agreement(PSA)with the Government of Yemen.Calvalley is the operator of the Block 9 Joint Venture(JV)pursuant to the JOA among Calvalley,HoodOil Ltd.(“HoodOil”),Reliance Industries Limited(“Reliance”)and a subsidiary of the Yemen Oil and Gas General Corporation(“Yemen Co.”),an entity

121、 owned by the Government of Yemen.Yemen Co.s interest under the JOA consists of a 15%overriding royalty on the JVs allocation of profit oil under the PSA.Production Sharing AgreementOil and natural gas production from Block 9 is allocated between the JV and agencies of the Government of Yemen pursua

122、nt to the terms of the PSA.The Government of Yemen receives a 10%royalty in kind from all Block 9 production,after which the remaining oil production is shared between the JV and the Government of Yemen.The JV is first allocated up to 45%of gross production to recover capital and operating costs inc

123、urred in order to operate Block 9.To the extent that recoverable costs exceed 45%of the 2010 Annual Report21fair value of gross production,any excess costs are carried forward for recovery against future production.After deducting cost oil,the remaining profit oil is allocated between the Government

124、 of Yemen and the JV as follows:39.23%of total profit oil to the JV(before deducting 35%income tax on JVs share of profit oil and after deducting 15%override to Yemen Co.);and 60.77%totheGovernmentofYemen(includingYemenCo.soverrideandbeforeincludingincometaxonJVsshareof profit oil).Provided that tot

125、al recoverable costs do not exceed 45%of gross production,the JV may recover operating costs during the year in which they are incurred and may deduct 50%of capital costs incurred during the year of expenditure and 50%during the following year.As at December 31,2010,the Companys share of capital cos

126、ts to be carried forward for recovery against future production was approximately$51.4 million.Until these costs have been recovered,together with future operating and capital costs that become eligible for recovery during that time period,the Companys net oil production will equal 31.33%of gross oi

127、l production(22.5%from cost oil and 8.83%from profit oil).Following full recovery of past operating costs,the Companys net oil production will range between 17.65%and 31.33%of gross oil production,which will vary depending upon prevailing crude oil selling prices and the capital and operating costs

128、incurred by the JV.The Companys share of profit oil is subject to 35%income tax to the Government of Yemen which is paid by the Government of Yemen out of its share of profit oil.ethiopiaProduction Sharing ContractIn 2008,Calvalley entered into its first Production Sharing Contract with the Ethiopia

129、n Government for the exploration,development and production of petroleum substances in the Gimbi and Metema blocks under a single contract covering a total area of over 46,470 km2(11.5 million acres).Calvalley has a 100%operated working interest in both blocks for an exploration period of eight year

130、s,consisting of an initial period of four years followed by two subsequent option periods consisting of two years each.The option period will be activated at the discretion of Calvalley.Furthermore,subject to hydrocarbon discovery during the total eight year period,the PSC provides for an additional

131、 25 year development period with a 10-year optional extension.The PSC gives Calvalley the rights to explore,develop,and produce hydrocarbons including oil,condensate,natural gas,and associated liquids.Total initial work obligations under the PSC,to be incurred during the initial 4-year exploration p

132、rogram amount to approximately$8.5 million and consist of the acquisition and processing of 400 km of 2D seismic and the drilling of one exploration well.As at December 31,2010,the Company has incurred$1.2 million in exploration expenditures in fulfillment of these obligations.Key PeRFoRMance inDica

133、toRsCalvalley uses key financial indicators to help assess its business performance and manage its operations.These financial indicators measure business growth(revenue and capital expenditures),cash generation(EBITDA and funds flow from operations)and profitability(operating income and net income).

134、These key financial indicators are discussed in more detail in the following sections.Production and sales information 2010 2009 Year Year Total Q4 Q3 Q2 Q1 Total Q4Block 9 oil production(bopd)4,512 4,334 4,512 4,606 4,597 4,320 4,404Company working interest share(bopd)2,256 2,167 2,256 2,303 2,299

135、2,160 2,202Calvalley Petroleum Inc.22ProductionSubstantially all of Calvalleys crude oil production in 2010 and 2009 came from the Hiswah oil field,which produces high-quality,lighter crude oil that is sold at prices comparable to the Dated Brent crude oil reference price.All of the Companys crude o

136、il production was trucked more than 250 kilometers to the Safer Exploration and Production Operations Co.processing facility on Block 18,where the crude oil was processed and shipped via pipeline to the Ras Isa marine terminal facility for export.During the year ended December 2010,the Companys work

137、ing interest oil production averaged 2,256 barrels of oil per day(bopd)(2009 2,160 bopd).Production rates during the year ended December 2010 improved in comparison to rates during the year ended December 2009.During the fourth quarter of 2010,the Company conducted a detailed review of its Hiswah fi

138、eld development plan and material requirements.Delays in receiving delivery of certain materials had resulted in the shutting in of 12 producing wells and 2 new development wells.As a result of the review,the Company has selected a new supplier with superior downhole production equipment that will r

139、esult in long-term optimization of production rates.The Company ordered 23 electric submersible pumps,4 of which have been delivered to Block 9.This will allow the Company to bring all shut-in wells into production in 2011.During 2010 the Company finalized transportation agreements which will provid

140、e for the Companys use of export facilities at Block 51 and Block 14.Once shipments to Block 51 commence,the Company will begin production from the Al Roidhat and Ras Nowmah fields.Finding and Development costs(F&D costs)The following table summarizes finding and development costs for 2010,2009,and

141、2008.Three Years 2010 2009 2008Reserve Additions(000 boe)Proved 9,947 4,492 1,219 4,236Probable 17,795 6,111 2,704 8,980F&D Costs Proved($000)Change in future development costs(794)(3,963)11,110(7,941)Capital expenditures(1)57,455 18,406 13,456 25,593Total F&D costs proved 56,661 14,443 24,566 17,65

142、2F&D Costs Proved Plus Probable($000)Change in future development costs(12,148)(14,467)25,850(23,531)Capital expenditures(1)57,455 18,406 13,456 25,593Total F&D costs proved 45,307 3,939 39,306 2,062Finding and Development Costs Per Barrel($/boe)Proved(F&D costs/reserve additions)5.70 3.22 20.15 4.1

143、7Proved plus probable(F&D costs/reserve additions)2.55 0.64 14.53 0.23(1)Capital expenditures exclude capitalized general and administrative expenditures(2010$2.0 million;2009$1.2 million;2008$2.4 million)as well as expenditures associated with the Companys activities in Ethiopia(2010$0.6 million;20

144、09$0.3 million;2008$0.3 million).(2)The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for

145、 that year.(3)BOEs may be misleading,particularly if used in isolation.A BOE conversion ratio of 6 Mcf:1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency.Note however,that the Company reserves are comprised of in

146、 excess of 98%oil.2010 Annual Report23selected operating informationThe following table sets forth key indicators for the periods indicated:2010 2009 Year Year($000)Total Q4 Q3 Q2 Q1 Total(1)Q4Oil sales 63,867 22,042 19,877 7,499 14,449 50,839 14,136Royalties(including government share of profit oil

147、)(24,373)(8,361)(7,549)(2,935)(5,528)(19,485)(5,394)Operating expenses(10,157)(3,588)(3,487)(1,194)(1,888)(10,313)(2,321)Current taxes(3,940)(1,362)(1,229)(463)(886)(3,143)(880)Netback(2)25,397 8,731 7,612 2,907 6,147 17,898 5,541Management fees 466 146 125 94 101 389 107Facility usage fee(1)(1,025)

148、General and administrative expenses(4,349)(1,027)(1,090)(1,169)(1,063)(4,413)(1,095)Taxes 3,940 1,362 1,229 463 886 3,143 880EBITDA(2)25,454 9,212 7,876 2,295 6,071 15,992 5,433Depletion,depreciation and amortization(9,437)(2,690)(3,235)(1,178)(2,334)(9,850)(2,433)Operating income(loss)(2)16,017 6,5

149、22 4,641 1,117 3,737 6,142 3,000Net income(loss)10,941 4,987 2,744 485 2,725 2,951 2,109Capital expenditures 21,077 10,302 4,734 2,842 3,199 11,803 4,813Funds flow from operations(2)21,915 7,976 6,744 1,926 5,269 13,600 4,652Cash flow(deficiency)from operating activities 21,592 11,863 1,150 3,457 5,

150、122 13,971 9,271(1)For the purpose of calculating netback,operating expenses for the year total of 2009 were adjusted to exclude the portion of the facility usage fee(FUF)which relates to deliveries of crude oil prior to January 1,2009 in the amount of$1,025.See discussion on operating expenses for

151、further details.(2)See“Non-GAAP Measures”.Netbacks are calculated on barrels sold as sales revenue less government royalties,taxes and operating expenses and are recognized when the underlying oil is sold.Government royalties and taxes taken in kind are attributed value at the price received by Calv

152、alley for its production as follows:netbacks 2010 2009 Year Year($/bbl)Total Q4 Q3 Q2 Q1 Total(1)Q4Oil sales 80.03 85.44 76.10 84.70 75.91 57.08 73.83Royalties(including government share of profit oil)(30.59)(32.43)(28.96)(33.25)(29.09)(21.92)(28.28)Operating expenses(12.73)(13.91)(13.35)(13.49)(9.9

153、2)(11.58)(12.12)Current taxes(4.94)(5.28)(4.70)(5.23)(4.69)(3.53)(4.56)Netback(2)31.77 33.82 29.09 32.73 32.21 20.05 28.87(1)For the purpose of calculating netback,operating expenses for the first quarter and year total of 2009 were adjusted to exclude the portion of the FUF which relates to deliver

154、ies of crude oil prior to January 1,2009 in the amount of$5.79/bbl.See“Operating Expenses”.(2)See“Non-GAAP Measures”.Calvalley Petroleum Inc.24Netbacks for the quarter ended December 2010 were$33.82/bbl compared to$28.87/bbl for the quarter ended December 2009.Netbacks for the year ended December 31

155、,2010 were$31.77/bbl in comparison to$20.05/bbl for the comparable period in 2009.Fluctuations in netbacks are primarily attributable to changes in the prevailing price of crude oil.Netbacks are also impacted by fluctuations in operating costs as discussed below.Revenue During the fourth quarter of

156、2010,Calvalley recorded oil revenue of$22.0 million as compared to$14.1 million for the three months ended December 31,2009.The significant increase in revenue is attributable to a 34.8%increase in sales volume and a 15.7%increase in selling price.The Company recognized revenue on the sale of 258,00

157、4 barrels during the quarter ended December 31,2010 compared with 191,456 barrels during the three-month period ended December 31,2009.The average selling price realized during three months ended December 31,2010 was$85.44/bbl in comparison to$73.83/bbl during the fourth quarter of 2009.The increase

158、 in sales volume is attributable to the timing of lifts and is not directly correlated with production,which was 398,717 bbls in 2010 versus 405,160 bbls in 2009.For the year ended December 31,2010 oil revenues totalled$63.9 million compared to$50.8 million for the year ended December 31,2009.The di

159、rectional variance for the twelve-month period is attributable to the same factors as for the three-month period.The decrease in sales volume from 890,636 barrels during the year ended December 31,2009 to 798,066 barrels during the year ended December 31,2010 accounted for a 10.4%decline in revenue.

160、The decrease was offset by a 40.2%increase in the average selling price which improved from$57.08/bbl in 2009 to$80.03/bbl in 2010.other Revenue Other revenue amounted to$0.3 million for the quarter ended December 31,2010(2009$0.2 million)and$0.9 million for the year ended December 31,2010(2009$1.2

161、million).Interest revenue resulted from maintaining significant cash reserves and guaranteed investment certificates(GICs)throughout the period.Interest income has declined from 2009 due to reduced interest rates throughout the year.Interest rates on interest-bearing deposits declined throughout 200

162、8 and 2009,and have remained depressed during 2010 as central banks attempt to stimulate their economies by reducing borrowing rates.operating expensesOperating expenses during the fourth quarter of 2010 were$3.6 million($13.91/bbl)as compared to$2.3 million(12.12/bbl)in the year ended December 31,2

163、009.Operating expenses for the year ended December 31,2010 were$10.2 million($12.73/bbl)compared to$11.3 million($11.58/bbl)for the year ended December 31,2009.Total operating expenses were higher in the quarter ended December 31,2010 than during the comparable period during 2009 as a result a$0.3 m

164、illion charge($1.01/bbl)taken by the Company in respect of processing fees associated with the sulphur content of certain oil deliveries.Total operating expenses were higher for the year ended December 31,2010 in comparison to the year ended December 31,2009 as a result a$0.6 million charge($0.75/bb

165、l)taken by the Company in respect the processing fee issue noted above.In addition,the Company conducted certain non-recurring maintenance projects.During the first quarter of 2009,the Government of Yemen charged Calvalley$1.1 million for facilities usage.All producers of crude oil in Yemen are subj

166、ect to the FUF.The charge was applied retroactively from the commencement of production at Block 9.The portion of the charge related to deliveries that occurred prior to January 1,2009 amounted to$1.0 million and has been excluded from operating expenses for the purpose of this MD&A to maintain comp

167、arability of operating expenses.The balance of the charge in the amount of$81,000($0.40/bbl)related to oil that was delivered to the government facility during the first quarter of 2009.The FUF is recoverable from the Companys share of cost oil in accordance with the terms of the PSA.Operating expen

168、ses include$5.47(2009$5.06)per gross barrel for trucking costs,third-party processing costs,and tariffs for use of pipeline and marine terminal facilities.The increase in costs relates to the sulphur processing fees discussed above.2010 Annual Report25general and administrative expenses(g&a)G&A,net

169、of$0.7 million that was capitalized into resource development costs,totalled$1.0 million for the quarter ended December 31,2010 as compared to$1.1 million for the quarter ended December 31,2009.For the year ended December 31,2010 G&A costs were$4.3 million compared to$4.4 million during the year end

170、ed December 31,2009.G&A costs directly associated with Block 9 operations become recoverable costs and will be recovered from revenue associated with cost oil under the terms of the PSA.eBitDaDuring 2010,the Company generated EBITDA of$25.5 million compared with$16.0 million during 2009.For the four

171、th quarter EBITDA was$9.2 million compared to$5.4 million for the corresponding period in 2009.The fluctuation in EBITDA is primarily attributable to changes in the prevailing price of crude oil.The FUF referred to above in the discussion on operating expenses was a significant contributor to the de

172、crease in EBITDA recognized for the twelve and three months ended December 31,2009.EBITDA is also impacted by the timing of lifts by the purchaser of the Companys crude oil.Depletion,Depreciation and amortization(DD&a)expenses 2010 2009 Year Year Total Q4 Q3 Q2 Q1 Total Q4DD&A($000)9,437 2,690 3,235

173、 1,178 2,334 9,850 2,433DD&A($/bbl)11.82 10.43 12.39 13.31 12.26 11.06 12.71Calvalley recorded DD&A expenses of$2.7 million for the quarter ended December 31,2010 as compared to$2.4 million for the fourth quarter of 2009.For the year ended December 31,2010,DD&A expenses of$9.4 million were recorded

174、in comparison to$9.9 million for the year ended December 31,2009.The changes in the 2010 versus 2009 annual DD&A rates per barrel are primarily related to adjustments as reflected in the Companys December 31,2010 reserve report.The DD&A provision is also impacted by the build up of inventory at each

175、 period end.operating incomeDuring the fourth quarter of 2010,the Company generated operating income of$6.5 million compared with$3.0 million during the three months ended December 31,2009.During the year ended December 31,2010 the Company generated operating income of$16.0 million in comparison wit

176、h$6.1 million for the corresponding period during 2009.Operating income was impacted by the same factors as those affecting netbacks and EBITDA.income taxesCurrent income tax expense amounted to$1.4 million(2009$0.9 million)for the fourth quarter of 2010 and 3.9 million (2009$3.1 million)for the yea

177、r ended December 31,2010.The charge represents income taxes incurred and paid under the laws of Yemen pursuant to the PSA.The income tax is calculated as 35%of the Companys profit oil revenue in Yemen,and is paid by the Government of Yemen out of its share of profit oil.Calvalley Petroleum Inc.26con

178、soliDateD casH FloWoperating activities 2010 2009 Year Year($000)Total Q4 Q3 Q2 Q1 Total Q4Funds flow from operations 21,915 7,976 6,744 1,926 5,269 13,600 4,652Change in non-cash working capital(323)3,887(5,594)1,531(147)371 3,369Cash provided by(used in)operations 21,592 11,863 1,150 3,457 5,122 1

179、3,971 8,021As at December 31,2010,the Company held cash and cash equivalents of$19.5 million compared with$20.0 million at the end of 2009.Additionally,the Company held GICs with an initial term greater than 90 days in the amount of$53.4 million (December 31,2009$50.4 million).The Company invests it

180、s cash reserves in GICs issued by an Alberta credit union in which deposits are guaranteed by the Province of Alberta.Funds flow from operations of$8.0 million during the fourth quarter of 2010 was sufficient to fund the majority of additions to property,plant and equipment in the amount of$10.3 mil

181、lion.During the fourth quarter of 2009,funds flow from operations of$4.7 million.Funds flow from operations was 21.9 million during the year ended December 31,2010 compared to 13.6 million for the year ended December 31,2009.investing activities 2010 2009 Year Year($000)Total Q4 Q3 Q2 Q1 Total Q4Add

182、itions to property,plant and equipment(21,077)(10,302)(4,734)(2,842)(3,199)(11,803)(4,811)Change in non-cash working capital 3,843 6,731(2,538)(69)(281)6,960 5,608Net investment in GICs(3,064)(168)4,327 1,286(8,509)(7,637)(6,359)Cash provided by(used in)investing activities(20,298)(3,739)(2,945)(1,6

183、25)(11,989)(12,480)(5,562)During 2010,the Company made capital expenditures of$21.1 million compared with$11.8 million during 2009.The Company invested in the construction of additional facilities for water and gas injection,and the blending of crude oil.The Company also continues to invest resource

184、s to construct the truck offloading facility at Block 51 in anticipation of delivering oil to this location in accordance with the terms of the agreements described in detail in the Outlook section of this MD&A.Expenditures were incurred to prepare and complete the Al Roidhat wells for production,to

185、 drill development wells in the Hiswah area,and to drill exploration and appraisal wells in the Ras Nomah and Salmin areas.Finally,the Company conducted a seismic acquisition program during the fourth quarter of 2010.The Companys funding of expenditures on behalf of its partners exceeded payments re

186、ceived from the Companys partners in the amount of$1.7 million during 2010.Capital expenditures related to the shortfall amounted to$2.7 million.The Company also invested in GICs during the year ended December 31,2010.Financing activities 2010 2009 Year Year($000)Total Q4 Q3 Q2 Q1 Total Q4Issuance o

187、f common shares 393 183 41 55 114 776 19Common share repurchase(2,189)(720)(626)(843)(3,342)(521)(1,796)(537)(585)55(729)(2,566)(502)2010 Annual Report27During 2010 the Company repurchased 718,662 Class A Common Voting Shares on the open market pursuant to its normal course issuer bids at a cost of$

188、2.2 million representing an average cost of$3.04/share(C$3.13/share).Proceeds from the issuance of Class A Common Voting Shares during the year were related solely to the exercise of stock options and totalled$0.4 million.consoliDateD Financial Position 2010 2009Assets($000)As at period-end Q4 Q3 Q2

189、 Q1 Q4 Q3Cash and cash equivalents 19,573 11,937 14,316 12,437 20,043 17,997GICs 53,447 53,279 57,606 58,892 50,383 44,024Accounts receivable 4,611 3,910 33 3,007 2,821 2,707Due from joint venture partners 10,825 12,052 5,825 6,607 9,112 12,143Oil inventory 120 1,804 2,947 428 225 266Prepaid expense

190、s 371 608 549 201 341 373Property and equipment 101,763 93,380 91,114 90,806 90,066 87,668Total assets 190,710 176,970 172,390 172,378 172,991 165,178As at December 31,2010,the Companys total assets were$190.8 million,an increase of$17.7 million from December 31,2009.Cash and cash equivalents amount

191、ed to$19.6 million compared with$20.0 million at the beginning of the year.The decrease was offset by an increase of$3.1 million in GICs.Accounts receivable increased by$1.8 million to$4.6 million as at December 31,2010.The amount due from JV partners increased from$9.1 million at the beginning of t

192、he year to$10.8 million as at December 31,2010.Oil inventory decreased from$0.2 million at December 31,2009 to$0.1 million at December 31,2010.Oil inventory results from the timing of lifts and relates to oil production in storage at the end of a period,valued at the average cost of production.At De

193、cember 31,2010,the Companys oil inventory net of royalties and taxes amounted to 2,562 bbls compared to 5,805 bbls at December 31,2009.Property and equipment increased to$101.8 million as at December,2010.The movement in property and equipment resulted from capital expenditures of$21.1 million,which

194、 was offset by DD&A expense of$9.4 million less$0.1 million in net adjustments to depletion related to oil in inventory.2010 2009Liabilities and Shareholders Equity($000)As at period-end Q4 Q3 Q2 Q1 Q4 Q3Accounts payable and accrued liabilities 19,264 10,297 8,626 9,390 12,220 6,232Share capital 116

195、,140 116,079 116,227 116,143 116,387 116,622Accounts payable and accrued liabilities increased to$19.3 million as at December 31,2010,from$12.2 million as at December 31,2009.The primary reason for this decrease is the increased capital spending related to heightened exploration and development acti

196、vity during the last two months of 2010 and the timing of payments made to suppliers and contractors.Share capital decreased to$116.1 million as at December 31,2010 from$116.4 million as at the end of 2009 as a result of the repurchase of common shares through the Companys normal course issuer bids.

197、The decrease was partially offset by the issuance of Class“A”Common Voting Shares from the exercise of stock options during the period.Calvalley Petroleum Inc.28liQuiDity anD caPital ResouRcesCalvalleys principal source of liquidity has been funds flow from operations.Calvalley manages its liquidity

198、 risk by regularly monitoring its cash flows from operating activities and holding adequate amounts of cash and cash equivalents.The Company does not invest its funds in speculative securities.The 2010 budget is expected to be funded from cash flow from operations and existing cash resources.Should

199、the prevailing Dated Brent Crude price decline to lower than budgeted,Calvalley has sufficient flexibility in its capital budget to adjust capital expenditures to enable the capital program to be funded through internally generated cash flow.Fluctuations in commodity prices,product demand,foreign ex

200、change rates and interest rates,as well as various other risks relating to factors beyond the control of Calvalley may impact capital resources.Calvalley has no outstanding bank debt or other interest-bearing indebtedness as at December 31,2010.The Company has not arranged any undrawn operating line

201、s of credit with any financial institution as the Company intends to fund its near-term capital expenditure programs from available cash on hand,funds flow from operations and,if required,from the issuance of additional share capital.As at December 31,2010,the Companys total assets were$190.7 millio

202、n,an increase of$17.7 million from December 31,2009.Cash and cash equivalents amounted to$19.6 million compared with$20.0 million at the beginning of the year.Cash equivalents are invested with high-quality financial institutions with terms to maturity of less than three months.Additionally,the Comp

203、any held GICs with an initial term greater than 90 days.Total cash and cash equivalents plus GICs increased from$70.4 million at December 31,2009 to$73.0 million at December 31,2010.Interest rates on interest-bearing deposits have remained depressed over the past year as central banks attempt to sti

204、mulate their economies by reducing borrowing rates.Most of Calvalleys funds are deposited at a credit union where deposits are guaranteed by the Government of Alberta.As at December 31,2010 the Companys working capital decreased to$69.7 million as compared to$70.7 million as at December 31,2009.At D

205、ecember 31,2010 the Company had Canadian tax pools of approximately$34.2 million,of which$16.8 million were non-capital losses,$7.1 million were Canadian resource tax pools,$10.3 million were undepreciated capital cost allowance and$Nil were deferred financing costs.No provision has been made to rec

206、ord these pools as an asset because the Company is not likely to take advantage of them due to the insignificance of its Canadian operations and assets.The Company has no long-term contractual obligations in Canada other than an operating lease for office space of approximately$0.2 million in each o

207、f 2011,2012,and 2013.Its long-term commitments regarding its Yemen property include its 50%proportionate share of government allowances and bonuses payable under the terms of the PSA of$450,000 per year,plus its 50%proportionate share of certain other bonus payments of$2 million,$3 million and$4 mil

208、lion when and if sustainable production exceeds 25,000,75,000 and 100,000 bopd day,respectively.During 2008,Calvalley entered into its first Production Sharing Contract(PSC)with the government of the Federal Democratic Republic of Ethiopia.Pursuant to the PSC,the Company has entered into certain com

209、mitments to spend approximately$8.5 million during the first four years of its work program.Calvalley had no off-balance-sheet arrangements as at December 31,2010 or December 31,2009.2010 Annual Report29econoMic sensitiVitiesThe following table shows the estimated after-tax effect that changes to cr

210、ude oil prices,gross crude oil production,operating costs and interest rates would have had on Calvalleys net income for the year ended December 31,2010,had these changes occurred on January 1,2010.These calculations are based on business conditions,production and sales volumes existing for the curr

211、ent period.The 1,000 bopd increase assumes the increase is to gross field production and Calvalleys entitlement is calculated according to the provisions of the PSA and JOA.Net Income Net Income Impact Impact Change(+)($millions)($per basic share)Average realized price$10.00/bbl 4.5 0.05Crude oil pr

212、oduction 1,000 bopd 3.6 0.04Increase in operating expenses$1.00/bbl(0.8)(0.01)Interest rate 1%0.7 0.01The impact of the above changes may be compounded or offset by changes to other business conditions.In addition,the table does not reflect any inter-relationships between the above factors.Changes i

213、n the foreign exchange rates have not been considered in this analysis as they do not have a significant impact on Calvalleys operations.RelateD-PaRty tRansactionsOn June 10,2009 the Company advanced$113,000 to a member of the Board of Directors.The advance was provided to provide funds for the exer

214、cise of options and was included in accounts receivable,was non-interest-bearing,repayable within 90 days,and secured by shares of the Company.The advance was repaid in full during August 2009.RisK FactoRsCalvalley is exposed to a number of risks inherent in exploring for,developing and producing oi

215、l and natural gas.This section describes the risks and other matters that would be most likely to influence an investors decision to purchase securities of Calvalley.Calvalley manages a number of risks in its business in order to achieve an acceptable level of risk without hindering the ability to m

216、aximize returns.Management has adopted procedures to identify and manage significant operational and financial modity RiskCalvalleys principal business is the production and sale of crude oil.Revenues,earnings and cash flows from the sale of crude oil are sensitive to change in market prices,over wh

217、ich the Company has little or no control.The Company has the ability to address its price-related exposures through the limited use of options,future and forward contracts,but generally does not enter into such arrangements.currency FluctuationsCalvalley undertakes transactions in currencies other t

218、han the United States dollar.The Companys primary foreign exchange risk is to changes in the value of the Canadian dollar relative to the United States dollar.Fluctuations in exchange rates between the United States dollar and other currencies will give rise to foreign currency exposure,either favou

219、rable or unfavourable,which may have material effects on the Companys operations and financial condition.The Company has the ability to address its currency-related exposures through the use of foreign exchange contracts.It generally does not enter into such hedging arrangements but maintains a port

220、ion of its currency in Canadian dollars to meet its Canadian dollar requirements.Calvalley Petroleum Inc.30interest RatesThe Company has no interest-bearing debt.The Company invests surplus cash balances in short-term investments with recognized Canadian financial institutions.Fluctuations in intere

221、st rates,either favourable or unfavourable,may have material effects on the Companys interest income on short-term cash investments.credit Risk and concentration of sales RiskIn January 2007,the Company entered into a long-term crude oil marketing agreement under which the Company sells all of its c

222、rude oil production to a single purchaser for a period of 18 months.The purchaser is a subsidiary of Reliance Industries Limited,Indias largest business enterprise,which is a party to the JOA for Yemen Block 9.The purchasers obligations under the crude oil marketing agreement are guaranteed by Relia

223、nce,which has been assigned credit ratings of Baa2 Stable Outlook by Moodys and BBB Stable Outlook by S&P(above Sovereign Rating).The contract was formally extended in April 2009 and remains in effect.Credit risk also relates to the risk that joint venture partners may not fulfill their contractual

224、obligations for financial contributions towards exploration,development,appraisal and production operations.During the initial agreement negotiations and ratification,these risks are considered and incorporated into the terms of the applicable contracts.Furthermore,cash calls can be made in advance

225、of incurring costs to help ensure costs are recovered.However,it is possible that the interest of Calvalley and its JV partners are not aligned,resulting in project delays,additional costs or disagreements,which could adversely affect business results.insurable RiskCalvalley employs risk management

226、practices to reduce and mitigate operational risks and other hazard risks and exposures,although it is impossible to completely protect its operations from all such risks.The Company places types and an amount of insurance that it considers consistent with industry practice to the extent coverage is

227、 available and cost effective.Such coverage includes third-party liability insurance and property and business interruption insurance.The Company may become liable for damages arising from unforeseen events which it cannot insure against or chooses to self-insure.Costs incurred to repair such uninsu

228、red damage or to pay associated liabilities may have a material effect on the financial condition of the Company.legal contingenciesThe Company has been named in a claim filed in the Commercial Court of Yemen by a Saudi Arabian company.The claimant alleges that,pursuant to an agency agreement entere

229、d into in 1996,it is entitled to a percentage of the net profit attributable to the Company.Over the past several years this issue has been before the Commercial Court of Yemen,the Yemeni Court of Appeal and the Supreme Court of Yemen on a number of procedural issues and has now been sent back to th

230、e Supreme Court of Yemen for reassessment.Interim judgments have been issued and both parties appealed an initial ruling which limited the plaintiffs entitlement to an interest on the net profit from profit oil production prior to February,2008.Calvalley has cross-appealed on a number of matters of

231、substance and procedure.The Companys legal advisors in Sanaa and Calgary are pursuing the appeal jointly.The outcome of the action in the Supreme Court of Yemen is undeterminable at this time and the Company is exploring both judicial,and extra judicial,resolution.No amounts have been accrued in the

232、 consolidated financial statements for the periods ended December 31,2010 as the ultimate resolution is uncertain.The Company will record any amounts due,if any,once the outcome of the contingency is likely and reasonably estimated.Between 2004 and 2007,the Company billed its Block 9 joint venture p

233、artners(JV Partners)for fees in accordance with the terms of the PSA which governs the joint venture operating activities on Block 9.The JV Partners contend that certain of these fees are not billable under the terms of the Joint Operating Agreement(JOA)between the Company and the JV Partners.Pendin

234、g resolution of this matter,the Company has not charged the JV Partners for the fees in question during 2008 and 2009.The 2010 Annual Report31Company and its JV Partners have now agreed to enter into a binding expert determination in London,England to interpret the terms of the JOA and to obtain a r

235、uling on whether the fees in question are billable.While management is not able to determine the likelihood of a positive or negative outcome,the maximum liability to the Company related to fees charged from 2004 to 2007 is$1.0 million.Conversely,should the fees be deemed billable,the Company would

236、recover fees which have not previously been recorded in the accounts in the amount of$926,997.In the normal course of operations,the Company may be subject to litigation and claims.In the opinion of management,other than as disclosed above,no such litigation or claim,individually or in aggregate,wou

237、ld result in a liability that would have a significant adverse effect on the financial position or results of operations of the Company.concentration of Producing assetsSubstantially all of Calvalleys production is generated from highly productive individual wells in Yemen.The production and sale of

238、 crude oil in Yemen involves the use of central production facilities,oil pipelines,and export terminals,either operated by the Company or by third parties.As significant production is generated from each of these assets,any single event causing an interruption to any one of these operations could r

239、esult in the loss of production and reserves as a result.exploration,Development and Production RisksAcquiring,developing and exploring for oil and natural gas involves many risks which include but are not limited to encountering unexpected formations or pressures,premature declines of reservoirs,bl

240、ow-outs,well bore collapse,equipment failures and other accidents,craterings and sour gas releases,uncontrollable flows of oil,natural gas or well fluids,and environmental risks.In many oil and natural gas producing countries,oil and natural gas properties,together with related production and transp

241、ortation infrastructure,can be situated in remote areas.In addition to the operational risks described above,oil and natural gas properties in some of these countries may be vulnerable to premeditated acts of violence which have the potential to cause significant damage to oil and natural gas operat

242、ions and injury or death to personnel.The Company relies on the Government of Yemens support in providing appropriate security for crude oil operations in Block 9.Calvalley may not be fully insured against all of these risks.Losses resulting from the occurrence of these risks could have a material i

243、mpact on the Companys financial results.Reserve additionsCalvalleys future crude oil reserves and production,and therefore its operating cash flows and results of operations,are highly dependent upon the Companys success in exploiting its current reserve base and acquiring or discovering additional

244、reserves.Without reserve additions through exploration,development or acquisitions,the Companys reserves and production will decline over time as reserves are produced.The business of exploring for,developing or acquiring reserves is capital-intensive.To the extent cash flows from operations are ins

245、ufficient and external sources of capital become limited or unavailable,Calvalleys ability to make the necessary capital investments to maintain and expand its oil production and reserves will be impaired.environment,Health,safety and Regulatory approvalsEnvironmental,health and safety laws and regu

246、lations are continually evolving.Compliance with such laws and regulations can require significant expenditures which may materially affect the Companys financial condition or results of operations.Expansion of existing operations and the development of new operating sites generally require approval

247、 of regulatory authorities.If such approvals are delayed or not achieved,the Companys ability to meet project schedule or cost objectives or to operate at expanded or existing levels could be materially impacted.Workplace health and safety risks for workers arise from the inherent nature of the Comp

248、anys operations and the jurisdictions within which it operates.Calvalley Petroleum Inc.32Political RisksBeyond the risk inherent in the oil and gas industry,the Company is subject to additional risks resulting from the current unrest in the Middle East.These risks can involve matters arising out of

249、the evolving laws and policies,the imposition of special taxes or similar charges,oil export or pipeline restrictions,foreign currency controls,the unenforceability of contractual rights,restrictions on the use of expatriates in the operations and other matters.There can be no assurance that agreeme

250、nts entered into with various parties are enforceable or binding in accordance with the Companys understanding of their terms or that if breached,the Company would be able obtain favourable remedies.The Company bears the risk that political change could occur and that such change could have a furthe

251、r impact on the Companys petitionThere is strong competition relating to all aspects of the oil and natural gas industry.Calvalley actively competes for skilled industry personnel who are in high demand,particularly at its Canadian headquarters,with a substantial number of other oil and natural gas

252、companies,many of which have significantly greater financial and other resources.changes in legislationThere can be no assurance that laws and regulations relating to the oil and natural gas industry will not be changed in a manner which would adversely affect the operations of the Company.Under the

253、 PSA,the Company is not obligated to comply with regulatory changes that are inconsistent with the provisions of the PSA.Further,the PSA stipulates that the interests,rights and obligations of the Government of Yemen and the Company shall be solely governed by the provisions of the PSA unless altere

254、d or amended by mutual agreement.In particular,the PSA requires that the Government of Yemen pay profit taxes on the Companys behalf,out of the Government of Yemens share of profit oil.MeasuReMent unceRtaintyThe preparation of consolidated financial statements requires management to make estimates a

255、nd assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenue and expenses during the reporting period.Actual results,including petroleum and natural gas sales,royalties a

256、nd operating expenses,can differ from these estimates.In particular,amounts recorded for depreciation and depletion and amounts used for ceiling test calculations are based on estimates of petroleum and natural gas reserves and future costs required to develop those reserves.The Companys reserve est

257、imates are evaluated annually by an independent engineering firm.By their nature,these estimates of reserves and the related future cash flows are subject to measurement uncertainty and the impact on the consolidated financial statements of future periods could be material.Computations of provisions

258、 and estimates for income taxes involve management making judgments with respect to interpretation of tax regulations and related legislation which is continually changing.In addition,there are tax matters that have not yet been confirmed by taxation authorities.While management believes the provisi

259、on for income taxes is adequate,these amounts are subject to measurement uncertainty.Adjustments required,if any,to these provisions will be reflected in the period when it is determined that adjustments are warranted.The Black-Scholes option valuation model was developed for use in estimating the f

260、air value of traded options which were fully tradable with no vesting restrictions.This option valuation model requires the input of highly subjective assumptions including the expected stock price volatility.Because the Companys stock options and warrants have characteristics significantly differen

261、t from those of traded options and because changes in the subjective input assumptions can materially affect the calculated fair value,such value is subject to measurement uncertainty.2010 Annual Report33Amounts recorded as due from joint venture partners are based on the Companys interpretation of

262、underlying agreements and may be subject to joint approval.The Company has recorded balances due based on costs incurred and its interpretation of allowable expenditures.Any adjustments required as a result of joint venture audits are recorded in the period of settlement with joint venture partners.

263、aDDitional inFoRMationAs at December 31,2010,the Company had 97,714,280 common shares outstanding.Additionally,there were 4,801,668 options outstanding which were issued pursuant to the Companys stock option plan.As at March 22,2011,the Company had 97,554,679 common shares outstanding.Additionally,t

264、here were 4,764,341 options outstanding which were issued pursuant to the Companys stock option plan.DisclosuRe contRols anD PRoceDuResDisclosure Controls and Procedures(“DC&P”)are designed to provide reasonable assurance that information required to be disclosed is recorded,processed,summarized and

265、 reported within the time periods specified in applicable securities legislation,and include controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management,including the CEO and CFO,as appropriate to allow timely decisions regarding

266、 required disclosure.As at December 31,2010,an evaluation of the design of the Companys DC&P was carried out under the supervision of,and with the participation of management including its certifying officers.Based on that evaluation,the Companys certifying officers concluded that the design of the

267、Companys DC&P was effective as at December 31,2010 and would provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities during the period in which the annual filings were prepared,and th

268、at information required to be disclosed by the Company would be recorded,processed,summarized and reported within the time periods specified under applicable securities legislation.inteRnal contRols oVeR Financial RePoRtingInternal Controls over Financial Reporting(“ICFR”)are designed to provide rea

269、sonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP.ICFR can only provide reasonable assurance and may not prevent or detect misstatements.Projections of an evaluation of effectiveness to future periods are s

270、ubject to the risk that controls may become inadequate due to changes in conditions,or that the degree of compliance with the policies and procedures may deteriorate.As at December 31,2010,an evaluation of the design of the Companys ICFR was carried out under the supervision of,and with the particip

271、ation of management including its certifying officers.Based on that evaluation,the Companys certifying officers concluded that the design of the Companys ICFR was effective as at December 31,2010 and would provide reasonable assurance that material weaknesses in ICFR would be made known to them,and

272、reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.Calvalley Petroleum Inc.34eFFect oF FutuRe cHanges in accounting Policiesinternational Financial Reporting standards(iFRs)In February 2008,t

273、he CICAs Accounting Standards Board confirmed that all Canadian publicly accountable enterprises will be required to adopt IFRS for interim and annual reporting purposes for fiscal years beginning on or after January 1,2011.Calvalley is continually assessing the impact of the convergence of Canadian

274、 GAAP with IFRS on the Companys results of operations,financial position and disclosures.Under the direction and oversight of the Board of Directors and Audit Committee,the Company has assembled a project team to manage the transition and to ensure successful implementation within the required timef

275、rame.The Company recognizes that the changeover to IFRS has complex implications on a combination of accounting,financial reporting,and information technology and business systems.Consequently,senior management has engaged external consultants to conduct a business impact study,to assist in the deve

276、lopment a project plan,and to provide assistance in considering various accounting policy decisions which will be required throughout the transition period.Company personnel involved with the transition project have also received appropriate training and education.The overall IFRS transition project

277、 consists of five phases:(i)Scope;(ii)Plan;(iii)Design and Build;(iv)Implement;(v)Review.The Scope phase,which consisted of identifying the significant differences between Canadian GAAP and IFRS,has been completed.The Company concluded that the following key issues will have the most significant imp

278、act on Calvalleys results of operations,financial position and disclosures:IFRS 1 First-time adoption of International Financial Reporting Standards;IFRS 6 Exploration and Evaluation of Mineral Resources;International Accounting Standard(IAS)16 Property,Plant and Equipment;andIAS 36 Impairment of As

279、sets.The Company has also completed the Plan phase.During this phase,the Company gathered information and financial data to assess the potential impacts of the differences identified during the Scope phase.Management established the resources that are required to complete the transition to IFRS,asse

280、mbled an IFRS transition project team,and established internal milestones and timelines.The Company is currently adhering to the timelines established in its transition project plan.The Company continues to progress through the Design and Build phase of the transition project.The IFRS project teams

281、development of recommendations for IFRS policy decisions is ongoing,based on appropriately documented consideration of the following factors:Impactonfinancialandkeyperformanceindicators;Impactoninformationtechnologyandsystems;Impactontheinternalcontrolanddisclosurecontrolframeworks;Transitionandmain

282、tenancecosts;Impactoncommunicationswithkeystakeholders;and Othergeneralbusinessimpacts.2010 Annual Report35Accounting PoliciesThe IFRS project team conducted a preliminary detailed analysis of all IFRSs identified during the Scope phase and has identified the impact of the available policy alternati

283、ves to the Companys financial reports.A draft IFRS transition date consolidated balance sheet has been reviewed and approved by management and by the Audit Committee.Management has reviewed the available policy alternatives and has presented recommendations to the Audit Committee.IFRS 1 provides the

284、 framework for the first-time adoption of IFRS and specifies that,in general,an entity shall apply the principles under IFRS retrospectively.Adjustments that arise on retrospective conversion to IFRS from other GAAP are recognized directly in retained earnings.However,certain optional exemptions and

285、 mandatory exceptions to retrospective application are provided for under IFRS 1.Anticipated impacts to the Company of applying certain IFRS 1 exemptions and other relevant accounting differences between Canadian GAAP and IFRS on the consolidated financial statements of the Company are as follows:Fi

286、nancial Statement ItemImplications of IFRSExpected Impact on CalvalleyProperty,plant and equipment(PP&E)The existing Canadian GAAP oil and gas full cost pool must be segregated into exploration and evaluation(E&E)assets and development and producing(D&P)PP&E.Per IFRS 6,assets are to be reclassified

287、from E&E assets to D&P PP&E once technical feasibility and commercial viability have been achieved.Using the IFRS 1 deemed cost exemption the carrying value of the assets in the full cost pool under Canadian GAAP is deemed to be the opening carrying value under IFRS,subject to an impairment test.The

288、 Company plans to use the IFRS 1 deemed cost exemption for the opening IFRS carrying value of oil and gas assets,and management has assessed that all oil and gas assets in Yemen and Canada are technically feasible and commercially viable as at January 1,2010.As a result,exploration costs incurred in

289、 Ethiopia will be reclassified from PP&E to intangible E&E assets,and Yemen PP&E costs will be classified as D&P PP&E in the opening IFRS balance sheet.Canadian GAAP requires a two-step approach to impairment testing.Asset carrying values are first compared to undiscounted cash flows to determine wh

290、ether impairment exists.If an impairment is indicated,the magnitude of the impairment is measured by comparing the carrying value to the fair value of discounted cash flows.IAS 36 uses a one-step approach for testing and measuring impairment.Asset carrying values are compared to the higher of fair v

291、alue less costs to sell and value in use(which uses discounted future cash flows).IFRS also requires reversal of impairment losses when circumstances for previous impairment have changed,however Canadian GAAP prohibits reversal.The Company conducted IAS 36 impairment tests on its PP&E as at January

292、1,2010.None of the Companys assets were found to be impaired at the date of transition.Going forward under IFRS,the one-step impairment test approach could trigger more frequent impairment losses,and the reversal of impairments could result in greater volatility in net income and carrying values of

293、assets.Calvalley Petroleum Inc.36Financial Statement ItemImplications of IFRSExpected Impact on CalvalleyContributed surplus stock-based compensationWhere the Company recorded stock-based compensation expense on a straight-line basis and forfeitures as they occurred under Canadian GAAP,IFRS 2 Share-

294、based Payment requires expense recognition over the individual vesting periods of graded vesting awards and an estimation of forfeiture rates.Using the IFRS 1 share-based payment transactions exemption,IFRS 2 is retrospectively applied only to stock options issued after November 7,2002,that had not

295、vested as at January 1,2010.The Company plans to apply the IFRS 1 share-based payment transactions exemption.The opening IFRS balance sheet will reflect an increase to contributed surplus and a corresponding decrease to retained earnings for additional stock-based compensation expense.Going forward

296、under IFRS,stock-based compensation expense will be concentrated in the earlier years of an issue of graded vesting options.Accumulated other comprehensive income cumulative translation differencesApplying the IFRS 1 cumulative translation differences exemption resets previously recognized translati

297、on differences relating to investments in foreign operations to zero.The Company plans to elect the IFRS 1 cumulative translation differences exemption.Accumulated other comprehensive income as at January 1,2010 will consequently be decreased with a corresponding increase to retained earnings.IAS 21

298、 The Effects of Changes in Foreign Exchange Rates requires the Company to formally assess the functional currency of each entity in the consolidated group.Some variances in functional currency criteria exist between IFRS and Canadian GAAP.Consistent with its assessment under Canadian GAAP,the Compan

299、y determined that the US dollar is the functional currency of each entity within the consolidated group.Accounting for the Companys foreign currency transactions and balances under IFRS will remain consistent with Canadian GAAP.While management and the Audit Committee have made preliminary decisions

300、 and approvals regarding some of the Companys IFRS accounting policies,the areas impacted by IFRS discussed above should not be regarded as a comprehensive list of changes that will result from the transition to IFRS.The Companys selected IFRS policies have not been finalized and remain subject to r

301、eview by the Companys external auditors.As the Company proceeds with the Implementation and Review stages,management may find it necessary to refine its policy choices in order to accommodate developments to industry best practices and to provide more useful information in the financial statements.F

302、urther,the International Accounting Standards Board has ongoing projects that could affect IFRS prior to conversion in 2011 as well as the Companys financial statements in future years.DC&P and ICFRImplementation of the necessary changes to entity level,information technology,financial reporting,dis

303、closure,and business process controls will be executed as policy choices are finalized.Where significant changes are identified,these changes will be mapped and tested to ensure that no material deficiencies exist as a result of the Companys conversion to IFRS.2010 Annual Report37Business Activities

304、In conjunction with policy development,the Company continues to assess whether the transition to IFRS will have an impact on business activities.Management does not anticipate that IFRS will significantly affect the Companys contractual agreements,as the Company has no debt covenants,and the Yemen P

305、SA and Ethiopian PSC stipulate particular accounting and reporting requirements.Management has not identified any instances where IFRS would have major implications on existing contractual arrangements or on other business activities.Information Technology and Data SystemsIn respect of information t

306、echnology systems implications,management has communicated with software suppliers to confirm that systems in place are sufficient to enable the IFRS transition.Management is in the process of developing a strategy for implementing IFRS-compliant financial reporting processes during 2010 using the e

307、xisting accounting software suite and financial reporting infrastructure.Plans are also under development in preparation for the Q1 2011 transition to IFRS,which will require the loading of IFRS financial information into the current accounting and reporting systems.noRMal couRse issueR BiDsOn April

308、 21,2009,the Company made the necessary filings,and received the necessary approvals,to make a normal course issuer bid through the facilities of the Toronto Stock Exchange(TSX)commencing April 23,2009 and ending April 22,2010.A copy of the notice filed with the Toronto Stock Exchange can be obtaine

309、d by any shareholder of the Company,without charge,by contacting the Company.A total of 4,948,029 Class A Common Shares(the“Common Shares”)were authorized to be acquired under the bid,representing 5%of the 98,960,580 Common Shares outstanding as of April 15,2009.Calvalley was to acquire Common Share

310、s under the bid at the market price at the time of purchase,and all Common Shares acquired were to be cancelled.Unless Calvalley utilized a Block Purchase Exemption as permitted by the TSX,purchases were subject to a daily purchase restriction equal to 25%of the average daily trading volume of the C

311、ommon Shares over the preceding six calendar months,or a maximum of 28,824 Common Shares per trading day.In the opinion of Calvalleys Board of Directors,Calvalleys Common Shares were,from time to time,undervalued by the market,and the cost of acquiring the shares is an expense prudently incurred by

312、Calvalley to increase shareholder value.A total of 1,657,688 shares were acquired under the bid at an average cost of C$1.93/share.On September 14,2010,the Company made the necessary filings,and received the necessary approvals,to make a normal course issuer bid through the facilities of the Toronto

313、 Stock Exchange(TSX)commencing September 16,2010 and ending September 15,2011.A copy of the notice filed with the Toronto Stock Exchange can be obtained by any shareholder of the Company,without charge,by contacting the Company.A total of 7,841,792 Class A Common Shares(the“Common Shares”)were autho

314、rized to be acquired under the bid,representing 10%of the public float of Common Shares of the Company.Calvalley may acquire Common Shares under the bid at the market price at the time of purchase,and all Common Shares acquired are to be cancelled.Unless Calvalley utilizes a Block Purchase Exemption

315、 as permitted by the TSX,purchases are subject to a daily purchase restriction equal to 25%of the average daily trading volume of the Common Shares over the preceding six calendar months,or a maximum of 32,134 Common Shares per trading day.In the opinion of Calvalleys Board of Directors,Calvalleys C

316、ommon Shares are,from time to time,undervalued by the market,and the cost of acquiring the shares is an expense prudently incurred by Calvalley to increase shareholder value.As of March 22,2011,a total of 563,804 shares have been acquired under the bid at an average cost of C$4.17/share.Calvalley Pe

317、troleum Inc.38coMPaRaBility WitH PRioR PeRioDsRevenue may fluctuate from period to period due to the timing of shipments of oil from the Ras Isa Oil Terminal.Revenue is recognized only when oil is loaded onto a tanker.Oil in storage at period-end is recorded as inventory at the average cost of produ

318、ction and depletion and in situations where the take-or-pay provisions of the crude marketing agreement take effect,any receivable related to those provisions is recorded in the accounts as deferred revenue.At December 31,2010,the Company had no take-or-pay revenue and oil inventory was$0.1 million.

319、In April 2009,the Government of Yemen charged Calvalley$1.1 million for facilities usage.All producers of crude oil in Yemen are subject to the Facility Usage Fee(FUF).The charge was applied retroactively from the commencement of production at Block 9 and was accrued in the first quarter 2009 financ

320、ial statements.The portion of the charge related to deliveries that occurred prior to January 1,2009 amounted to$1.0 million.The balance of the charge in the amount of$81,000($0.40/bbl)related to oil that was delivered to the government facility during Q1 2009.The Company will continue to incur the$

321、0.40/bbl FUF in future periods.The FUF is recoverable from the Companys share of cost oil in accordance with the terms of the Production Sharing Agreement.FoRWaRD-looKing stateMentsThis MD&A contains certain forward-looking statements.Some of the statements contained herein including,without limitat

322、ion,financial and business prospects and financial outlooks of the Company may be forward-looking statements which reflect managements expectations regarding future plans and intentions,growth,results of operations,performance and business prospects and opportunities.Words such as“may”,“will”,“shoul

323、d”,“could”,“anticipate”,“believe”,“expect”,“intend”,“plan”,“potential”,“continue”,and similar expressions have been used to identify these forward-looking statements.These statements reflect managements current beliefs and are based on information currently available to management.Forward-looking st

324、atements involve significant risk and uncertainties.A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including,but not limited to,changes in general economic,political and market conditions and other risk factors.Althoug

325、h the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions,management cannot assure that actual results will be consistent with these forward-looking statements.Investors should not place undue reliance on forward-looking statements.These f

326、orward-looking statements are made as of the date hereof.Forward-looking statements and other information contained herein concerning the oil and natural gas industry and Calvalleys general expectations concerning this industry are based on estimates prepared by management using data from publicly a

327、vailable industry sources as well as from reserve reports,market research and industry analysis and on assumptions based on data and knowledge of this industry which Calvalley believes to be reasonable.However,this data is inherently imprecise,although generally indicative of relative market positio

328、ns,market shares and performance characteristics.While Calvalley is not aware of any misstatements regarding any industry data presented herein,the industry involves risks and uncertainties and is subject to change based on various factors.See“Risk Factors.”Calvalley does not undertake any obligatio

329、n to update publicly or revise any forward-looking statements contained in this or in any other document filed with Canadian securities regulatory authorities,whether as a result of new information,future events or otherwise,except as required by applicable securities laws.2010 Annual Report39Manage

330、Ments RePoRtThe consolidated financial statements of Calvalley Petroleum Inc.were prepared by management within acceptable limits of materiality and are in accordance with Canadian generally accepted accounting principles.Management is responsible for ensuring that the financial and operating inform

331、ation presented in the Companys 2010 annual report is consistent with that shown in the consolidated financial statements.The consolidated financial statements have been prepared by management in accordance with the accounting principles as described in the notes to the consolidated financial statem

332、ents.Timely release of financial information sometimes necessitates the use of estimates when transactions affecting the current accounting period cannot be finalized until future periods.When necessary,such estimates are based on informed judgments made by management.Management has designed and mai

333、ntains an appropriate system of internal controls to provide reasonable assurance that all assets are safeguarded and financial records properly maintained to facilitate the preparation of consolidated financial statements for reporting purposes.Deloitte&Touche LLP,an independent firm of Chartered Accountants appointed by the shareholders,have conducted an examination of the corporate and accounti