JPMorgan - KASE

Adoption of Certain Accounting Standards
Effective January 1, 2000, we adopted the new recommendations of the Canadian Institute of
Chartered Accountants with respect to future income taxes. Under this recommendation, future
income tax assets and liabilities are computed based upon temporary differences between the
accounting and taxation basis of assets and liabilities. On January 1, 2000, we recorded a future
income tax asset of $19.1 million on the basis that realization of such asset is more likely than
not. The restatement was applied retroactively without restatement of prior year figures. This
increased retained earnings at January 1, 2000 by $19.1 million.
We have adopted the recommendations of the Canadian Institute of Chartered Accountants
regarding stock-based compensation. We have elected to use the intrinsic value method of
accounting for stock options and to disclose the pro forma results of using the fair value method.
The new recommendations apply to options granted after January 1, 2002. We have not granted
any stock options during the nine months ended September 30, 2002.
Results of Operations
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
For the nine months ended September 30, 2002, we generated $117.4 million of net income and
$158.2 million of cash flow ($126.7 million after giving effect to changes in non-cash operating
working capital items) compared to $146.3 million of net income and $167.3 million ($119.8
million after giving effect to changes in non-cash operating working capital items) for the
comparable period in 2001.
Inventory volumes relating to in-transit non-FCA sales decreased from 1.1 million barrels at the
end of the second quarter to 895,000 barrels at the end of September. This release of inventory
increased net income for the third quarter by approximately $3.3 million as compared with the
second quarter.
Revenue, Production and Sales
Our total revenue was $568.7 million for the nine months ended September 30, 2002, which
represented an increase of $93.9 million over total revenue of $474.8 million for the comparable
period in 2001. Our overall increase in revenue from the nine months ended September 30, 2001
to the corresponding period in 2002 reflected a $126.3 million increase in revenue from the sale
of crude oil, partially offset by a decrease in revenue from the sale of refined products,
processing fees and interest and other income.
Upstream
Upstream production averaged 143,175 BOPD for the third quarter of 2002 compared to 104,379
BOPD for the comparable period in 2001.
The following table sets out total production figures from our Upstream operations for the nine
months ended September 30, 2002 and 2001:
Nine Months Ended
September 30, 2002
Nine Months Ended
September 30, 2001
(MMbbls)
Opening inventory of crude oil ....................... 0.70 0.39
Production ......................................... 35.00 26.69
Crude oil purchased from third parties ................. 0.24 –
Crude oil purchased from joint ventures (50%) .......... 2.12 —
Salesortransfers.................................... (36.74) (26.49)
Pipelinelosses ...................................... (0.05) (0.03)
Closing inventory of crude oil ......................... 1.27 0.56
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